World Bank Reinhart’s ‘skeptical’ global recession can be avoided

MADRID, June 29 (Reuters) – World Bank chief economist Carmen Reinhart has expressed skepticism about the ability of the U.S. and global economies to stave off a recession, given soaring inflation, the sharp rise in interest rates and the slowdown in growth in China.

Reinhart, who returns to Harvard University on July 1 after a two-year hiatus from public service, said it was historically difficult to reduce inflation and stage a soft landing at the same time, and that recession risks are clearly a “hot topic” at the moment.

“What worries everyone is that all the risks are piled on the downside,” Reinhart told Reuters in a remote interview, citing a series of adverse shocks and steps taken by the Federal Reserve to raise the risks. interest rates after a decade and a half of ultra-low interest rates. and negative rates.

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The global financial crisis of 2008-2009 mainly affected a dozen advanced economies and China was a big engine of growth at the time, but this crisis is much broader and China’s growth is no longer in two numbers, she said.

This month, the World Bank cut its forecast for global growth by almost a third to 2.9% for 2022, warning that Russia’s war in Ukraine had worsened the damage of the COVID-19 pandemic and that many countries were now facing recession. Read more

He said global growth could fall to 2.1% in 2022 and 1.5% in 2023, driving per capita growth close to zero, if downside risks materialize.

When asked if a recession could be avoided in the United States or globally, Reinhart said, “I’m pretty skeptical. In the mid-1990s, under (Fed) Chairman (Alan) Greenspan, we had a soft landing, but inflation worries at the time were around 3%, not around 8.5% It’s not like you can point to many episodes significant Fed tightening that has not weighed on the economy.”

Reinhart said the Biden administration was not alone in misjudging the extent of inflation risk, noting that the Fed, International Monetary Fund and others shared that view, although the World Bank qualified it as a “real risk” very early on.

“The Fed should have acted – and I’ve been saying this for a long time – sooner and more aggressively,” she said. “The longer you wait, the more drastic the steps you need to take.”

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Reporting by Andrea Shalal; Editing by Mark Porter

Our standards: The Thomson Reuters Trust Principles.

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