Monday, October 03, 2022

U.N. agency warns of recession linked to 'imprudent' monetary policy

Mon, October 3, 2022 at 9:05 AM·2 min read
By Emma Farge

GENEVA (Reuters) -A United Nations agency warned on Monday of the risk of a monetary policy-induced global recession that would have especially serious consequences for developing countries and called for a new strategy.

"Excessive monetary tightening could usher in a period of stagnation and economic instability" for some countries, the United Nations Conference on Trade and Development (UNCTAD) said in a statement released alongside its annual report.

"Any belief that they (central banks) will be able to bring down prices by relying on higher interest rates without generating a recession is, the report suggests, an imprudent gamble," it said.

The report said that higher interest rates, including hikes by the U.S. Federal Reserve, would have a more severe impact on emerging economies, which already have high levels of private and public debt. The report, entitled "Development prospects in a fractured world", also warned of a potential debt crisis in the developing world.


"The current course of action is hurting vulnerable people everywhere, especially in developing countries. We must change course," UNCTAD Secretary-General Rebeca Grynspan told a press conference in Geneva.




















Asked about solutions, she suggested there were other ways to bring inflation down, mentioning windfall taxes on corporations, better regulations to control commodity speculation and efforts to resolve supply-side bottlenecks.

"If you want to use only one instrument to bring inflation down...the only possibility is to bring the world to a slowdown that will end up in a recession," she said.

Overall, UNCTAD revised down its 2022 global growth projection to 2.5% from the earlier 2.6% estimated in its March assessment. It expects growth of 2.2% in 2023.

The International Monetary Fund also warned last month that some countries may slip into recession next year and revised its growth forecast downwards.

(Reporting by Emma Farge;Editing by Bernadette Baum and Aurora Ellis)


U.N. agency warns of recession linked to 'imprudent' monetary policy




Mon, October 3, 2022 at 9:05 AM·2 min read
By Emma Farge

GENEVA (Reuters) -A United Nations agency warned on Monday of the risk of a monetary policy-induced global recession that would have especially serious consequences for developing countries and called for a new strategy.

"Excessive monetary tightening could usher in a period of stagnation and economic instability" for some countries, the United Nations Conference on Trade and Development (UNCTAD) said in a statement released alongside its annual report.

"Any belief that they (central banks) will be able to bring down prices by relying on higher interest rates without generating a recession is, the report suggests, an imprudent gamble," it said.


The report said that higher interest rates, including hikes by the U.S. Federal Reserve, would have a more severe impact on emerging economies, which already have high levels of private and public debt. The report, entitled "Development prospects in a fractured world", also warned of a potential debt crisis in the developing world.

"The current course of action is hurting vulnerable people everywhere, especially in developing countries. We must change course," UNCTAD Secretary-General Rebeca Grynspan told a press conference in Geneva.

Asked about solutions, she suggested there were other ways to bring inflation down, mentioning windfall taxes on corporations, better regulations to control commodity speculation and efforts to resolve supply-side bottlenecks.

"If you want to use only one instrument to bring inflation down...the only possibility is to bring the world to a slowdown that will end up in a recession," she said.

Overall, UNCTAD revised down its 2022 global growth projection to 2.5% from the earlier 2.6% estimated in its March assessment. It expects growth of 2.2% in 2023.

The International Monetary Fund also warned last month that some countries may slip into recession next year and revised its growth forecast downwards.

(Reporting by Emma Farge;Editing by Bernadette Baum and Aurora Ellis)


Advanced economies need to change course on monetary policy as excessive central bank tightening risks sparking a global recession, UN trade group says


Jennifer Sor
Mon, October 3, 2022 

United NationsBebeto Matthews/AP Photo

Advanced economies need to change course on monetary policy, as central bank tightening could be sparking a global recession.

The idea that central banks can lower inflation with more rate hikes and avoid a recession is "an imprudent gamble," a UN trade group said.

The group trimmed its growth estimates for the global economy this year, and expects an even bigger slowdown in 2023.

Advanced economies need to change course on their monetary policy, as central bank tightening could be sparking a global recession, according to a United Nations trade group.

"Excessive monetary tightening could usher in a period of stagnation and economic instability," the United Nations Conference on Trade and Development warned in a statement on Monday, shortly after releasing a report on growing recession risks.

In the report, the UN group trimmed its growth estimates for the global economy from 2.6% to 2.5% this year, and expects an even bigger slowdown in 2023, with just 2.2% growth next year.

"Any belief that [central bankers] will be able to bring down prices by relying on higher interest rates without generating a recession is, the report suggests, an imprudent gamble," the group added.

That's largely due to global inflationary forces, with nations being rocked by soaring energy prices amid Russia's war on Ukraine as well as lingering supply-chain issues from the pandemic. Eurozone inflation touched a record 10% last week despite a series of aggressive rate hikes from the European Central Bank, and US inflation also remains stubborn to Fed policy, only cooling slightly to 8.3% in August.

It's supporting the case for more aggressive hikes to come from major economies, as central bankers scramble to get inflation back down to target levels. But the level of tightening needed to rein in prices risks screeching the global economy to a halt, the UN report warned. That particularly applies to the Fed and other advanced economies, as the dollar and euro encompass large chunks of world trade and debt volume.

"What does seem likely is that the impact of Fed tightening will be more severe for vulnerable emerging economies with high public and private debt," the report said, calling a debt crisis a "very real possibility" for developing countries.

It echoes warnings from other experts who have sounded global recession alarms as central banks attempt to undo the damage from ultra-loose monetary policies during the pandemic.

Top economist Nouriel Roubini warned on Monday there are signs that a debt crisis has already started, and a hard landing of the economy before the end of the year is now the baseline scenario.

Noble laureate Paul Krugman has also warned that the Fed's rate hikes could have an outsized effect on the global economy.

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