The probability of a tougher version of the global crisis is estimated to be over 50%, Olga Veretennikova, vice president of the analytical company Borsell, told Izvestiya on November 9.
The expert said that in most developed countries, inflation in recent months is at record levels over the past forty years. According to her, the reasons for this were record stimulus from governments to support economies during the coronavirus epidemic and disruptions in supply chains, which were caused by the partial or complete shutdown of the economies of some countries. To fight inflation, the central banks of states began to tighten monetary policy (MP) (curtailing the repurchase of assets from the market, raising interest rates), she added.
“So far, this has not brought any significant effect in the fight against inflation. Usually, raising rates gives an effect after some time (within six months). Even if a slowdown occurs, it is unlikely that inflation will reach the Fed’s target of 2% from the current 6.2%,” she said.
Veretennikova specified that while the members of the regulator are determined in their desire to fight inflation. Thus, many of the Fed members said they were not against further tightening of monetary policy.
“The pace of rate hikes can be slowed down, but the final figure is likely to be above 4.6%. That is why in the world more and more forecasts come down to the fact that central banks will not be able to reduce inflation to the target level and at the same time avoid a recession,” the expert noted.
As she explained, in turn, the recession will lead to a deterioration in the labor market (increase in unemployment, slowdown / cessation of wage growth), which will cause a noticeable decrease in consumer demand. This, in turn, will undermine the demand for resources (metals, oil, gas, etc.) on the part of producers, which can lead to a significant reduction in their cost.
“The growth of interest rates may have a negative impact on the debt market. The greatest concern is caused by highly leveraged companies that attracted loans at near-zero rates, they may face problems with on-lending and servicing their debts. This could lead to a debt crisis. Another consequence of excessive tightening of the monetary policy could be a crisis in the mortgage lending market,” she said.
According to the expert, further strengthening of the dollar will lead to a deterioration in the situation in emerging markets, which may also face a recession. Countries with high levels of public debt denominated in US dollars are likely to be particularly disadvantaged, she said. Veretennikova added that the strengthening of the dollar will lead to an increase in the cost of servicing borrowings, which could result in a series of defaults.
“It’s becoming increasingly difficult to avoid it (a tougher version of the global crisis – Ed.), because not only the increase in interest rates, but also the SVO (special military operation to protect Donbass – Ed.), and coronavirus restrictions in China have a negative impact on the global economy that disrupt production chains,” Veretennikova concluded.
The day before, the Chairman of the Bank of Russia, Elvira Nabiullina, said that in recent months the situation and the balance of risks for the global economy have shifted, if not towards a full-scale global crisis, then a more severe version of the development of the situation.
OPEC Secretary General Haytham al-Ghais told reporters on October 31 that a recession awaits the European economy, and the United States is probably moving in the same direction.
According to the report of the Bank of Russia, published on August 12, the regulator, in the forecast scenarios for the development of events in the global economy, allows a global financial and economic crisis comparable in scale to the crisis of 2007-2008.
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