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Macroscope | Global economy’s frightful state gives world leaders reason to bury their heads in the sand
- The world’s leaders had so many topics demanding their attention at recent summits that the parlous state of the global economy was overshadowed
- Summit attendees could be forgiven for keeping quiet given the likelihood of continued monetary tightening and a 2023 of contraction and recession
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From the Olympian heights they scaled to attend recent summits, national leaders had a clear view of the state of the world. As a result, the United States and China raised their sights on nuclear conflict and climate change, but on the global economy leaders failed to see through gathering dark clouds.
This was unfortunate because rarely has the global economy faced such a barrage of daunting challenges as it does now. Primarily, the war on inflation can be won only at the expense of economic recession and corporate distress, and even then not before we come down the debt mountain.
There was so much to occupy the attention of leaders from advanced and emerging economies at the Group of 20 (G20), UN climate change, Asean, East Asia and other summits – the Ukraine conflict, global warming, food and energy crises and so on – that the state of the global economy and financial system was largely overshadowed.
It will not remain in the shade for long, however. Charles Dallara, who could be described as an elder statesman of international finance, and others have warned that underlying reality will force its way into the open with rising unemployment, falling asset values and financial system problems.
Dallara, a veteran US Treasury and International Monetary Fund (IMF) senior official who also headed the Institute of International Finance in Washington for many years, is one of a shrinking number of people with the individual and institutional memory to realise that fighting inflation is a drawn-out, painful process.
His analysis in this regard, given during a recent event I moderated at the Foreign Correspondents’ Club of Japan, is that US Federal Reserve chair Jerome Powell “cannot afford to take his foot off the brake” on inflation. This, he said, is “not something that markets want to hear”.
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