New Delhi: The global economy has been hit by at least three shocks since 2020, noted the Economic Survey for 2022-23. In general, global economic shocks in the past were severe but abated over time. This changed in the third decade of this millennium. It all started with a pandemic-induced contraction of global output, followed by a Russian-Ukraine conflict that led to a rise in inflation around the world. Then, the economies’ central banks, led by the Federal Reserve, raised synchronous policy rates to curb inflation.
The rate hike by the US Fed attracted capital into the US markets, causing the US dollar to appreciate against most currencies. This widened the current account deficit (CAD) and added to inflationary pressures in net importing economies. The rate hike and persistent inflation lowered global growth forecasts for 2022 and 2023 by the IMF in its October 2022 update of the World Economic Outlook.
Weaknesses in the Chinese economy contributed to weakening forecasts for further growth. The survey said that apart from economic tightness, slowing global growth could also lead to financial sickness emanating from advanced economies, where non-financial sector debt has risen by the most since the global financial crisis. With inflation persisting in advanced economies and signs of further rate hikes by central banks, downside risks to the global economic outlook appear elevated.