Recognizing that high inflation will not quietly go
away, the world’s major central banks are toughening their
policies.
Gradualism has given way to super-sized interest rate increases
and a clearer resolve to restrain actual and expected inflation,
despite adverse economic consequences. The more hawkish rhetoric
and policy actions have unsettled financial markets, driving up
term yields and risk spreads. In turn, equity prices have fallen in
an environment of weak corporate earnings and rising interest
(discount) rates. Meanwhile, the US dollar’s exchange value has
soared in response to rising US bond yields and investor flight to
safety; this is adding to inflation and financial stresses in
emerging and developing countries.
With financial conditions deteriorating, the economic
outlook for 2023 has dimmed.
We now project global real GDP growth to slow from 5.8% in 2021
to 2.8% in 2022 and 2.0% in 2023. The 2023…
