Eco Survey Warns of Financial Contagion Emanating from Advanced Economies

New Delhi, Jan 31 (IANS) At least three shocks have hit the global economy since 2020, Economic Survey for 2022-23 has noted.

In general, global economic shocks in the past were severe but spaced out in time. This changed in the third decade of this millennium.

It all started with the pandemic-induced contraction of the global output, followed by the Russian-Ukraine conflict leading to a worldwide surge in inflation. Then, the central banks across economies led by the Federal Reserve responded with synchronised policy rate hikes to curb inflation.

The rate hike by the US Fed drove capital into the US markets causing the US Dollar to appreciate against most currencies. This led to the widening of the Current Account Deficits (CAD) and increased inflationary pressures in net importing economies.

The rate hike and persistent inflation also led to a lowering of the global growth forecasts for 2022 and 2023 by the IMF in its October 2022 update of the World Economic Outlook.

The frailties of the Chinese economy further contributed to weakening the growth forecasts.

Slowing global growth apart from monetary tightening may also lead to a financial contagion emanating from the advanced economies where the debt of the non-financial sector has risen the most since the global financial crisis, the Survey said.

With inflation persisting in the advanced economies and the central banks hinting at further rate hikes, downside risks to the global economic outlook appear elevated.