The United Nations warns of a global recession if Fed continues rate hikes

On Monday, a report from the United Nations Conference on Trade and Development (UNCTAD) was released which warned that the global economy is in danger due to the monetary and fiscal policies of central banks. In particular, it projected that increases in U.S. interest rates will reduce future income to poor nations by $360 billion.

The research states that UNCTAD anticipates a decline in global economic growth to 2.5% in 2022 and 2.2% in 2023. More than 20% of the world’s income will be dropped due to this, costing $17 trillion. The organization views growth rates for developing nations to be “insufficient for sustainable development” when they fall below 3%.

Additionally, it asserts that the poor are being “hit the hardest” by interest rate increases, with 90 developing nations’ currencies expected to depreciate against the dollar by 2022. Between January and July, over a third of those nations experienced a decline of more than 10%, with Argentina and Turkey experiencing declines of 23% and 31%, respectively.

The report states that “a stronger dollar makes the situation worse raising the price of imports in developing countries. It further reads:

“The consequences are devastating for the poor across the globe, especially in a time of stagnant wages for most workers.” 

Last month, the British pound experienced significant declines against the dollar, reaching a low of $1.07 before rebounding to $1.13 days later. Even Bitcoin outperformed most fiat currencies against the dollar for the third quarter, despite the bearish trend in the crypto market.

Global financial institutions should give developing nations more liquidity relief: UNCTAD

UNCTAD suggested that global financial institutions give developing nations more debt and liquidity relief as a defense against prospective financial crises. Additionally, it urged central banks in emerging nations to “reverse course” and “avoid the temptation” of adopting even higher interest rates to tamp down on price increases. Advanced economies should “avoid austerity measures,” it advised.

Richard Kozul-Wright, the director of UNCTAD, also suggested that lowering interest rates might not be the best way to combat inflation. He advocated for additional “targeted measures,” such as “strategic price controls” and taxing windfall gains, to be used by policymakers.

In July, the International Monetary Fund or IMF recently said that the risk of global recession would be prominent in 2023.