IMF, World Bank and United Nations all warn of looming global recession

As interest rate hikes continue in an attempt to curb inflation, several world leading organisations such as the International Monetary Fund, World Bank, United Nations and JPMorgan have warned a global recession could be on its way.

Several factors are feeding the recession fears, including inflation levels, interest rates going up more than consumers anticipated, the unknown effects of quantitative tightening and Russia’s war in Ukraine.

The leaders of the IMF and World Bank have cautioned that as advanced economies slow and inflation continues to force the reserve banks to raise interest rates, it will fuel debt pressures on developing nations.

According to JPMorgan Chase chief executive officer Jamie Dimon, the US economy is “still doing well” at the present, but added it’s hard not to look into the future.

“But you can’t talk about the economy without talking about stuff in the future — and this is serious stuff,” he said.

Although the fears have been raised, Mr Dimon said consumers were in better shape today than at the time of the 2008 global financial crisis.

Mr Dimon says as a result of Europe already being in a recession, it could spur “the US in some kind of recession six to nine months from now.”

Major predictions

Meanwhile, IMF managing director Kristalina Georgieva predicts approximately one-third of the world economy will experience at least two consecutive quarters of contraction this year and next – leading to lost output of US$4 trillion through to 2026.

World Bank president David Malpass also stated there’s a serious danger of a worldwide contraction next year, with the US dollar’s strength dragging down the currencies of developing nations, adding to their debt levels.

Just last month, the US Federal Reserve raised benchmark interest rates by three-quarters of a percentage point, which marked the third consecutive increase of that size, with officials confirming hikes would likely continue to 3.25% from the current range of 3%.

Mr Dimon said the Fed “waited too long and did too little”, with inflation at four-decade long highs, but remains hopeful.

“And, you know, from here, let’s all wish him success and keep our fingers crossed that they managed to slow down the economy enough so that whatever it is, is mild — and it is possible,” he said.

United Nations adds its voice

Last week, the United Nations released its annual report, with the United Nations Conference on Trade and Development (UNCTAD) suggesting that after a “recovery” in 2021, “the world economy is in the midst of cascading and multiplying crises.”

The UN said debt-distressed countries would edge ever closer to default from the raising of interest rates and other circumstances.

UNCTAD secretary-general Rebeca Grynspan said change is needed to prevent a global recession.

“There’s still time to step back from the edge of recession,” she said.

“But the current course of action was hurting the most vulnerable, especially in developing countries and “risks tipping the world into a global recession …”

The UN noted economic hardship, along with the COVID-19 outbreak threats, climate change, and government spending cuts could lead to further political instability and conflict.

Treasurer warns of impact

Australian Treasurer Jim Chalmers added to the growing sense of fear – cautioning the upcoming federal budget would be written with the consideration of the global situation.

“The world is bracing for another global downturn. That’s the truth of it,” he said.

“We’ve seen in the comments from the head of the IMF overnight, we’ve seen in recent commentary from the OECD and the World Bank and the IMF that the prospects for a recession in some of the major economies of the world has edged over from possible to probable, and that has obvious implications for us as well.”

Mr Chalmers said while a recession could still be avoided in Australia, the country would still experience the effects of the global decline.

“We are in much better nick than most of the countries with which we compare ourselves, but we won’t be immune from a global downturn,” he said.