The United Nations Conference on Trade and Development (UNCTAD) has warned that the U.S. Federal Reserve’s interest rate hikes and the slew of other central banks raising rates, could pose harm to the global economy. UNCTAD calculated that for every Fed basis point rise, the economic output of wealthy countries declines by 0.5%, and for poorer countries, the value of all sales of goods and services is reduced by 0.8% for a duration of three years.
UNCTAD Report Criticizes Central Bank Rate Hikes During Global Economic Downturn
Monetary tightening measures may not be a good idea according to the United Nations (U.N.) agency UNCTAD. The entity, created in 1964, is an intergovernmental organization created to help developing nations enhance global trade. UNCTAD notes in an annual report that the recent interest rate hikes by the U.S. Federal Reserve and numerous central banks worldwide will reduce the economic output of both wealthy and poor countries between 0.5% and 0.8% over a three-year period.
“The world is headed towards a global recession and prolonged stagnation unless we quickly change the current policy course of monetary and fiscal tightening in advanced economies,” UNCTAD’s report notes. “UNCTAD projects that world economic growth will slow to 2.5% in 2022 and drop to 2.2% in 2023. The global slowdown would leave real GDP still below its pre-pandemic trend, costing the world more than $17 trillion — close to 20% of the world’s income.”
The annual report immediately digs into central banks raising benchmark lending rates and creating tougher monetary policy. UNCTAD blames the world’s economic hardships on “supply-side shocks, waning consumer and investor confidence,” and the Ukraine-Russia war. “Despite this, leading central banks are raising interest rates sharply, threatening to cut off growth altogether and making life much harder for heavily indebted firms, households, and governments,” the U.N. agency’s report explains.
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The report, authored by UNCTAD’s secretary-general Rebeca Grynspan, says that Latin American countries and specific regions in Africa may “suffer [from] some of the sharpest slowdowns this year.” “The average growth rate for developing economies is projected to drop below 3% — a pace that is insufficient for sustainable development and will further squeeze public and private…
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