No, says conventional wisdom. Europe’s showing another way – though it won’t be painless either.
(Al Jazeera) – When global leaders gathered at the annual World Economic Forum conclave in Davos last month, they were looking at a bleak economic scenario.
Two-thirds of the economists polled by the WEF for its Chief Economists Outlook report said a global recession – a shrinking of the world’s gross domestic product – was likely in 2023. Also in January, the World Bank warned the global economy was “perilously close to falling into recession”.
Since then, the International Monetary Fund in its end-January assessment has presented a less pessimistic forecast, suggesting that the global economy might avoid contraction this year. Still, the IMF has predicted that the United Kingdom’s economy will shrink and has cautioned that the United States has only a “narrow path” to escaping a recession.
The IMF, World Bank and many other experts have pointed to one key factor pushing the economy towards a recession: sharp interest rate hikes by central banks in recent months to tame soaring inflation.
So does the world need to choose between spiralling prices and a recession whose threat itself has sparked major layoffs, with more than 100,000 tech workers fired just in January? Amid economic crises, do people in effect need to choose between affordable fuel and a steady job? Al Jazeera posed these questions to leading economists.
The short answer: Curbing inflation is a painful exercise and, in most cases, leads to an economic slowdown. Yet it is a vital task for central banks because high prices affect the poor the most. The somewhat good news: Europe – a continent confronted with Russia’s brutal war and resulting energy shortages – might be showing how inflation can be tackled without tipping the economy into recession.