Global recession: In view of rising inflation, central banks around the world are increasing policy rates. This action is typically taken by central banks to restrain inflation by removing money from the market. Taking loans from banks has also become costly after the hike in policy rates. This affects people’s spending and decreases demand in the market, which leads to a gradual reduction in inflation. Now let’s talk about the US Federal Reserve (US FED), whose Federal Open Market Committee (FOMC) meeting is being held on September 20 and 21, and in view of It must be decided whether to raise interest rates in response to inflation. A recession is a possibility if the trend of rising interest rates keeps going in this direction. The World Bank has also expressed apprehension about this in its report.
Why did the World Bank warn about a recession?
In a report released on 15 September, the World Bank has expressed apprehensions that if the same trend of increasing interest rates by central banks continues, then the possibility of recession in 2023 cannot be ruled out. The World Bank said that during the last five decades, central banks did not raise rates in such a way to control inflation.
The World Bank has said in its report that the global economy is moving towards recession very fast. The World Bank, citing a study, has said that the world’s 3 largest economies – America, China, and European countries – are moving towards economic recession at the fastest rate.
Due to the strength of the dollar, the currencies of other countries fall.
Global economies are linked to each other. Most international trade is done in dollar denominations. Other economies and markets are significantly impacted when the dollar gains strength. You have already seen the condition of the rupee against the dollar, which recently crossed the 80 levels as well. This also applies to the yen, the currency of Japan, and the yuan, the currency of China, the second largest economy in the world.
Global growth may be 0.5 percent next year – World Bank
Given the manner in which central banks around the world are raising rates to control inflation, the World Bank has estimated that there could be an additional 2 percent increase. In such a situation, the global GDP growth may come down to 0.5 percent next year. Looking at this decline on a per capita basis, it can be 0.4 percent and technically it can be named a global recession.
What will happen to India if a recession hits
PwC in its latest report paints a grim picture. In a survey on business risk management in the US, 50 percent of people said they were considering cutting the workforce. Talking about India, 25,000 start-up employees have lost their jobs since the coronavirus hit. This year alone more than 12 thousand people have been fired. This is one side of the coin. Let’s look at the other side too.
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Dr. Satchidanand Shukla, Chief Economist, Mahindra Group says that the last 2-3 times the experience of the mild slowdown has been positive for India after a few quarters. There is no doubt that in the event of a global recession, our country’s exports and financial sector will not be affected. However, Shukla says that in the event of a recession, the goods we import from abroad become cheaper. For example, crude oil and other commodities. While the world’s economies are negative or have very low growth rates, India will be able to attract global capital even if the growth rate remains at 6 percent.
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