![]() ![]() The primary job of central banks is to achieve price stability. Andrew Bailey, governor of the Bank of England, speaking at a press conference in London, on February 2, 2023, as the Bank of England raised interest rates by half a percentage point in a bid to tame double-digit inflation Decoding interest rates The somewhat good news: Europe – a continent confronted with Russia’s brutal war and resulting energy shortages – might be showing how inflation can be tackled without tipping the economy into recession. Yet it is a vital task for central banks because high prices affect the poor the most. The short answer: Curbing inflation is a painful exercise and, in most cases, leads to an economic slowdown. So does the world need to choose between spiralling prices and a recession whose threat itself has sparked major layoffs, with more than 100,000 tech workers fired just in January? Amid economic crises, do people in effect need to choose between affordable fuel and a steady job? Al Jazeera posed these questions to leading economists. The IMF, World Bank and many other experts have pointed to one key factor pushing the economy towards a recession: sharp interest rate hikes by central banks in recent months to tame soaring inflation. Still, the IMF has predicted that the United Kingdom’s economy will shrink and has cautioned that the United States has only a “narrow path” to escaping a recession. Since then, the International Monetary Fund in its end-January assessment has presented a less pessimistic forecast, suggesting that the global economy might avoid contraction this year. Also in January, the World Bank warned the global economy was “perilously close to falling into recession”. Two-thirds of the economists polled by the WEF for its Chief Economists Outlook report said a global recession – a shrinking of the world’s gross domestic product – was likely in 2023. Structural reforms can further support the fight against inflation by improving productivity and easing supply constraints, while multilateral cooperation is necessary for fast-tracking the green energy transition and preventing fragmentation.When global leaders gathered at the annual World Economic Forum conclave in Davos last month, they were looking at a bleak economic scenario. Monetary policy should stay the course to restore price stability, and fiscal policy should aim to alleviate the cost-of-living pressures while maintaining a sufficiently tight stance aligned with monetary policy. Global inflation is forecast to rise from 4.7 percent in 2021 to 8.8 percent in 2022 but to decline to 6.5 percent in 2023 and to 4.1 percent by 2024. This is the weakest growth profile since 2001 except for the global financial crisis and the acute phase of the COVID-19 pandemic. ![]() Global growth is forecast to slow from 6.0 percent in 2021 to 3.2 percent in 2022 and 2.7 percent in 2023. The cost-of-living crisis, tightening financial conditions in most regions, Russia’s invasion of Ukraine, and the lingering COVID-19 pandemic all weigh heavily on the outlook. Global economic activity is experiencing a broad-based and sharper-than-expected slowdown, with inflation higher than seen in several decades. ![]()
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