Persistently high inflation and more aggressive monetary policy tightening now seem set to cause a global recession. While we had previously anticipated contractions in several economies, the gloom has spread such that we now see global GDP rising by just 1.7% next year, which would be below the consensus forecast and meet the IMF’s previous definition of a global recession. What’s more, the risks to even these new forecasts are skewed to the downside. The two biggest are that even more forceful tightening might be required to dampen demand and drive inflation out of the system or that higher interest rates cause problems in the financial system which then seep into the real economy.
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