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A perilous macroeconomic moment

By Eswar Prasad

07 Apr 2023 · 3 min read

Editor's Note

Even though inflation appears to have peaked, central banks have limited scope for cutting interest rates right now, Eswar Prasad writes in PS. That doesn't bode well for the global economy.

ITHACA – This is a perilous moment for the world economy, as stubbornly high inflation, bank failures, and geopolitical tensions threaten to derail growth. There are a few bright spots, with China and India projected to post around 5% and 6.5% growth, respectively, this year. As the latest update to the Brookings-Financial Times Tracking Indexes for the Global Economic Recovery (TIGER) demonstrates, however, the proliferation of risks and the tightening of financial conditions are taking a toll on business and consumer confidence and investment.

Inflation in major economies seems to have peaked as supply constraints ease, demand weakens, and some transitory factors – such as last year’s spike in energy prices – wane. Still, persistent above-target inflation leaves many central banks with little choice but to continue tightening, even if less aggressively than before. Complicating matters further is the banking-sector turmoil in some advanced economies, including the United States, which has undermined private-sector confidence and could, when paired with tighter financial conditions, hinder growth beyond this year.

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