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Economists say: No global recession yet but facing stagnant inflation


Economists say a global recession is not imminent, but incurs rising costs and slower growth.

“It’s not going to happen all of a sudden after inflation stagnates,” said Simon Baptist, chief global economist at the Economist Intelligence Unit. stagnant.

As the war in Ukraine and pandemic disruptions continue to wreak havoc on supply chains, stagnant inflation — marked by low growth and high inflation — will persist “at least for the next 12 months,” Baptist told me. CNBC last week.

Commodity prices will start to fall from next quarter, but will remain permanently higher than they were before the war in Ukraine for the simple reason that the supply of many Russian goods will be permanently cut, he added.

The pandemic as well as the war in Ukraine have constrained the supply of goods and commodities as well as their efficient distribution through inefficient global supply chains, forcing the prices of everyday commodities such as fuel and food. must increase.

However, while higher prices will be painful for households, growth in many parts of the world is still sluggish and the job market has not yet collapsed.

Unemployment rates in many economies have fallen to their lowest levels in decades.

For most of Asia’s economies, recession is quite unlikely, if we are talking about consecutive periods of negative GDP.

Simon Baptist

Chief Economist for the World, EIU

So consumers – while wary of a repeat of the last global recession caused by the US subprime crisis more than 10 years ago – need not start preparing for a recession.

Baptist told CNBC’s Street Signs on Thursday: “For most of Asia’s economies, a recession is pretty unlikely, if we’re talking consecutive periods of negative GDP.”

The economist said that even with the global economy facing the risk of recession, many consumers are still saving a lot of money and hoarding household items.

“So to some extent, it’s not going to be as bad as the numbers up front,” he said.

AMP Capital chief economist Shane Oliver also doesn’t see a recession written on the wall, at least not for another 18 months.

“Yield curves or the gap between long-term bond yields and short-term yields are yet to invert or unequivocally warn of a recession, and even if they do, the average leading to recession is 18 months”.

He thinks a deep market drop in the US and in Australia can be avoided.

At the same time, central banks around the globe are tightening interest rates to combat inflation.

The US central bank announced its biggest rate hike in more than 22 years earlier this month, raising its benchmark rate by half a percentage point and warning of further rate hikes.

Federal Reserve Minutes Released on Wednesday indicated that officials are ready to go ahead with multiple rate hikes by 50 basis points, as they try to bring down inflation.

Aerial view of containers piled up at the Port of Los Angeles on January 19, 2022 in San Pedro, California.

Qian Weizhong | VCG | beautiful pictures

Last week, the Reserve Bank of New Zealand, which has been tighter than other central banks, increased the cash rate by half a percentage point to 2%. It’s the central bank rate hike for the fifth consecutive time, and signal the cash rate will peak at a higher level than previously forecast.

Rates are now up 1.75 percentage points since the tightening cycle began in October.

“We are very committed to ensuring that real inflation tracks back within our target range of 1 to 3% and at 6.9% we are north of that… We are steadfast in our determination to contain inflation,” said Governor Adrian Orr.

However, economists say there is always a risk that keeping inflation in check will trigger a recession.

Inflation is notoriously difficult to control because curbing high prices through raising interest rates can lead to even lower growth.

“The longer inflation stays high, the more the investment markets worry that central banks won’t be able to tame it without causing a recession,” Oliver said.

But not everyone cares.

Capital Economics senior economic adviser Vicky Redwood said she was confident central banks would be able to reduce inflation without a recession.

Redwood said planned rate increases in many places – such as in Europe, the UK and the US – would be enough to bring inflation back on target.

“[But] If inflation and inflation expectations prove more stubborn than we expected, and as a result interest rates need to rise further, a recession is very likely,” she said in a note.

A Volcker shock-style recession may even be warranted, she added.

The Volcker shock came when Fed President Paul Volcker raised interest rates to historic highs in the 1980s, in an effort to end double-digit inflation in the US.



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