World heading towards global recession, radical policies needed to bolster growth: WTO chief

 

World Trade Organisation chief Ngozi Okonjo-Iweala said she believes that the world is inching closer towards global recession due to crises like the Russia-Ukraine war, climate crisis, high food prices, energy crisis and the COVID-19 pandemic. She also called for radical policies for reviving growth. 

At the opening of WTO’s annual forum in Geneva, she pointed out that her top concern is to ensure food security and access to energy. She was quoted as saying by news agency AFP, “The spectre of not having enough food is one that worries me.” She further stated that central banks will have to tighten and increase policy rates in a bid to tackle inflation. 

The WTO boss highlighted, “Central banks don’t really have too much of a choice but to tighten and increase interest rates- but the repercussions on emerging markets and developing countries is quite severe, because they too are tightening an increase in interest rates.” She also mentioned that central banks had to determine whether strong demand has led to inflation or rise in prices is connected with supply side issues. 

The WTO head is not the only one to sound the recession warning. The World Bank also stated in a report that central banks around the world are likely to raise policy rates next year as well. As per this report, investors can expect central banks to raise monetary policy rates to around 4 per cent – 2 percentage points more than their 2021 average.

World Bank president David Malpass also talked about the global economy’s rapid fall into recession and the impact this will have on emerging markets and developing economies. Malpass also talked about how policymakers should focus on boosting production instead. 

He noted, “To achieve low inflation rates, currency stability and faster growth, policymakers could shift their focus from reducing consumption to boosting production. Policies should seek to generate additional investment and improve productivity and capital allocation, which are critical for growth and poverty reduction.”

Commenting on what policymakers in emerging markets and developing economies can do, World Bank’s Acting Vice President Ahyan Kose underlined, “Policymakers in emerging markets and developing economies need to stand ready to manage the potential spillovers from globally synchronous tightening of policies. ”

Furthermore, domestic and global markets started on a sombre note today amid apprehensions of global recession. BSE and NSE fell sharply in opening trade on jittery global markets and also the upcoming Reserve Bank of India’s (RBI) monetary policy committee meeting on Friday. “Since valuations in India continue to be high relative to peers, investors may brace for more corrections in this bearish scenario. A sharp turnaround in global market sentiments will happen only when data indicate a decline in US inflation," said VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services.

Wall Street hit bearish notes as S&P 500 futures slipped 0.8 per cent whereas Nasdaq futures were down 1 per cent. This is also the seventh session wherein S&P 500 has logged losses. Asian markets logged a massive drop as MSCI’s broadest index of Asia-Pacific shares outside Japan dropped to its lowest since April 2020 at 2 per cent whereas Nikkei shed 2.2 per cent and South Korean stocks tumbled 3 per cent to a two-year low. 

(With agency inputs)

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