IMF chief economist says "World is teetering on the edge of global recession"

FXOpen

The Euro, US Dollar and even the Chinese Yuan are in the limelight this morning as Pierre-Olivier Gourinchas, Chief Economist of the International Monetary Fund (IMF) has stated that "The world may soon be teetering on the edge of a global recession, only two years after the last one."

A number of patently obvious factors have contributed to a slowing of economic growth in three of the world's most important economic regions, those being North America, Europe and China, those being the draconian lockdowns which a number of European Union member states the and North American governments imposed over the course of two years, and the supply chain issues which that caused between important suppliers in the Asia Pacific region among other knock-on effects.

During the summer of 2020 and early 2021, national governments introduced policies which supported lockdowns such as the furlough scheme in the United Kingdom which contributed toward adding £400 billion to the national debt, and the cost of keeping businesses inactive racked up around other parts of the world.

As a result, the piper has to be paid, and therefore the United States and Europe have been battling with rapidly rising inflation over the past year, and central banks have implemented interest rate rises to attempt to slow spending in an attempt to counteract 40-year high levels of inflation.

Slowing spending at a time when large proportions of the population are cash-strapped has added further to the stagnant state of many Western economies, and whilst China appears to be free from such a burden, it is not quite that simple, because China supplies western markets with a diverse array of products which all need to be shipped and delivered, and the disruptions in logistical operations have hit hard.

The US, China and the Euro Area comprise about 50 per cent of the global economy. Any economic downturn in these countries is very significant and would almost certainly have an adverse effect on the world's markets.

In China, continued local lockdowns over COVID-19 are negatively impacting the economy. As per reports, its economy shrank 2.6 per cent in the April-June quarter. IMF, too, has downgraded China's economic growth rate to 3.3 per cent for 2022 which is the lowest it has been for 40 years, and 40 years ago, China was still relatively undeveloped and far from the global modern economic and commercial powerhouse that it is today.

There has been more volatility in the currency markets among majors over recent months than has been the case for many years and these outlooks and circumstances are well worth bearing in mind.

This article represents the opinion of the Companies operating under the FXOpen brand only. It is not to be construed as an offer, solicitation, or recommendation with respect to products and services provided by the Companies operating under the FXOpen brand, nor is it to be considered financial advice.

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