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Global Economy Faces Its Biggest Test Since WWII

Hillary Opondo May 26, 2022

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The International Monetary Fund report indicates that the global economic outlook is rapidly darkening due to regular crises. The potential convergence of calamities like the Covid-19 pandemic and the Russia & Ukraine war has subjected it to perhaps its biggest test since the Second World War.

Both the invasion and the pandemic have led to fuel inflation worldwide. The sky-high fossil fuel shortages triggered prices are dragging economic growth behind. 

For the most part, many countries rely on fuel for energy, lighting, and production. It implies higher production costs and higher product prices. For that reason, people from different nations are facing surging energy and food prices.

On the other hand, central banks are implementing tricks to tame inflation and tighten monetary policies. Thus, this world economic forum approach is further straining indebted families, companies, and nations. 

The IMF warns that geopolitical disintegration between different countries can cause enormous global costs. Hence, it may hurt people based on their socioeconomic spectrum.

 

What's the Impact on Businesses?

For instance, tech fragmentation has shaved about 5% off most countries’ economies. The aptitude to respond faces challenges from events like the Russia & Ukraine war. Besides, tensions over security, tech standards, and trade undermine trust & growth in the global economic system.

A Washington-based firm has slashed its economic outlook on the global domestic products by about 0.8% to 3.6%. This estimation is varied from the prior prediction in January this year. The explanation for this alteration is Russia & Ukraine wars. 

Business leaders expect global inflation to continue rising for the next several months. The IMF managing director Kristalina Georgieva reported that the current global economic system faces a setback mainly due to the invasion.

The worst part is that the war limited economic stress in Ukraine unfolded before the global economy recovered from the pandemic. This situation makes everything worse. 

In any case, inflation is accelerating while the global economy strives to recover from the brief but severe pandemic-induced downturn. For example, Americans are facing the worst inflation in decades. The American Labor Department reports that consumer prices have soared by about 8.3% in April.

For that reason, the Federal Reserve is also strict about tightening the monetary policy. The United States central bank increased its interest rates by almost a half-basis point. They also signaled that similar-sized hikes are more likely to occur.

The Federal Reserve chairman acknowledges the pain of curbing demand and reducing inflation but pushes back against impending recession. He identified the strong consumer spending and the labor market as bright spots within the global economy. He also added that a soft landing is almost not possible.

 

Final Remarks

Generally, the ongoing supply chain constraints are challenging, and it is getting worse due to the global events in the last few months. Some events that make it harder include the Covid-19 lockdowns in China and Russia & Ukraine war. Nonetheless, it is possible to achieve a safe recovery if lawmakers implement strategic methods.

Hillary Opondo

All the content is provided for general information only and trade signals should not be construed as any form of regulated advice. It does not take into consideration your personal circumstances, including your investment objectives, risk profile, tax status, knowledge and understanding or financial situation. Past performance is no guarantee of future results.