UNCTAD: Excessive fiscal tightening could lead to long-term recession
“If the Fed raises interest rates by 1 percentage point, economic productivity in poor countries is 0.8% ↓… Risk for developing countries”
The United Nations agency has warned that aggressive rate hikes by central banks of major countries, including the US Federal Reserve, could drive global economies into recession.
According to the Wall Street Journal (WSJ) and Reuters on the 3rd (local time), the United Nations Conference on Trade and Development (UNCTAD) announced today in its annual report on the global economic outlook, if the Fed demand a fast rate. hike, it could do great harm to developing countries, he noted that it could affect
If the Fed raises the benchmark interest rate by 1 percentage point, it is estimated that the economic output of other rich countries will fall by 0.5% over the next three years and the economic output of poor countries by 0.8%, respectively.
The Fed’s fifth consecutive rate hike already this year alone will cost poor countries a loss of $360 billion in economic output over the next three years, UNCTAD predicts.
“Excessive monetary tightening could lead to a period of prolonged recession and economic instability in some countries,” Geneva-based UNCTAD said in a statement released in time for the report’s publication.
“This report suggests that belief is just a frivolous gamble[y banc canolog]that it can rely on high interest rates to bring down inflation without causing a recession,” he said.
UNCTAD Secretary General Rebecca Greenspan also said at a press conference at the Geneva headquarters that “there is still time to step back from the brink of recession.” “There is a risk of plunging the world into a global recession,” he said.
In its report, UNCTAD recommends that policymakers focus on measures aimed directly at rising prices, such as price caps, rather than rate hikes, which do little to alleviate energy and food shortages.
It could be funded through a one-time ‘windfall tax’ on energy companies, the organization proposes.
“If you’re trying to solve a supply-side problem with a demand-side solution, it’s a very dangerous approach,” said Richard Kozul-Wright, who led the report.
In the report, UNCTAD downgraded its global economic growth forecast for this year to 2.5% from the previous 2.6%, and predicted that the growth rate will slow further to 2.2% next year.
This point came after the Fed announced that it would raise the key interest rate to 4.5% by the end of the year and maintain it at a high level next year, following the three huge steps in a row (0.75 points percentage at a time).
In addition to the Fed, most central banks, such as the European Union (EU) and the UK, have also raised interest rates significantly to contain inflation.
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