The fallout from COVID-era monetary policy continues to wreak havoc throughout the global economy as more experts are slowly, but surely, waking up to the reality that a global recession is all but inevitable. This includes the World Bank Group, who released an Equitable Growth, Finance, and Institutions Policy Note, in September, detailing the grim multi-year outlook ahead for the global economy. While food shortages, supply chain delays, and international conflicts have all fed the beast of inflation, the efforts made to quell the financial pain of Americans and others around the world have largely fallen short. In fact, the actions taken by American policymakers and the central bank have exacerbated complications with inflation and shortages.
Previous Global Recessions
In the near century that has unfolded since the Great Depression, the United States has experienced 14 recessions, with the most recent taking place in 2020 during the COVID pandemic. Although the 2020 recession was dreadful for investors, it only lasted for a few months and quickly bounced back due to an unprecedented stimulus effort by the federal government. One would have to go back to the 2008 global financial crisis to witness a prolonged recession that was ultimately thwarted by quantitative easing.
The monetary policy that has dominated the United States financial system since 2009 implemented a low-interest rate environment to encourage economic expansion without exceeding a 2% inflation target rate. By and large, the federal reserve was able to achieve these goals, but the growth was artificial; instead of experiencing a natural financial reset in the wake of the 2008 financial collapse, investors across the globe were lifted by an economic wave propped up on stimulus. In 2020, the global markets were tested by the COVID pandemic and when the government increased their stimulus to historic levels, the financial house of cards started to collapse. Now, after nearly two years of dismissing critics concerns about overstimulating the economy as fearmongering, central banks are admitting that inflation is devastating investors in the United States and across the globe.
World Bank Group Prediction
The World Bank Group conducted research which concluded that by making monetary decisions in a timely manner, central banks could have eased the difficulty of addressing inflationary issues. While this analysis may seem obvious, inflation was initially classified as transitory because modern day central bank monetary policy has primarily concentrated on the demand side of economic growth. Now, as a result of these issues being cast aside, the global economic community is facing a high-risk of destabilization. This deterioration of the global economy will take place over a long period of time as issues of food insecurity, political malfeasance, and international conflicts erode the security and stability of nation states in the short term.
This ultimately guarantees that an inescapable ripple effect will extend global losses for investors. History has shown that every political and monetary policy decision has the potential to shift economies around the world. In 2020 and 2021 central banks pumped a record amount of stimulus into the global economy and unearthed the hottest inflationary environment since the 1970s. Prior to the pandemic, during the early years of the Trump administration, tariff wars with China and other countries impacted global imports and exports while trade deals were renegotiated. Countless foreign conflicts, real estate at home and abroad, and political upheavals throughout Africa and the Middle East over the years have all made their mark on economies and their investment markets.
Given the issues that are currently impacting the United States and other countries around the world, the World Bank Group concluded that widespread inflation would cause global economies to painfully decline through 2024. The authors noted, “Recent consensus forecasts suggest that the global economy will experience its steepest decline in growth over the next two years following an initial rebound from global recession since 1970.” Researchers from the World Bank Group went on to argue that a global recession is inevitable as central banks from around the world engage in a synchrony of monetary policy tightening to slow economic growth and cool down inflation — which they say is likely to remain above 3% globally through 2024.
Global Inflation Rates
Currently there are a handful of developed nations, including the United States, that are struggling with high rates of inflation. According to Trading Economics, an online economic database that forecasts more than 20 million economic indicators, there are several countries in Europe experiencing higher inflation than the United States (8.2%) due to a global energy crisis, largely stemming from Russia’s invasion of Ukraine and a supply drought that dried up in the later months of 2021.
Germany is among the notable countries in the group, who are currently dealing with their worst bought of inflation in over 70 years at 10%, while preparing for a very uncertain Winter season given their dependence on Russian oil and gas for heating and fuel. Other countries struggling with similar issues include: the Netherlands (14.5%), the United Kingdom (9.9%), Spain (9%), and Italy (8.9%). These high rates of inflation from developed nations throughout Europe are largely attributed to skyrocketing energy costs, much of which are a direct result of supply cuts from Russia in retaliation for Europe’s support of Ukraine.
As these economic issues continue to persist, consumers all over the world will be forced to pull back from spending on goods and services, which will reduce global growth outlooks just as the World Bank Group suggested. While globalization connected the world through trade and commerce, it also linked the world’s financial problems in such a way that would resemble falling dominos.
Protecting Your Nest Egg During Global Recessions
The abundance of issues impacting the global community makes it clear to those willing to pay attention that the economies of the world are tightening in the hands of inflation. Had central banks taken this issue seriously from the onset of the COVID pandemic, perhaps inflation would not be as devastating for investors as it is today. Due to their inaction and misguidance, inflation has no end in sight. This fact, however, does not mean investors cannot take the time to protect their hard-earned assets. Investors in the United States can meet with licensed financial advisors in Montgomery County, Pennsylvania or anywhere nearby to learn how a proprietary Crash Proof Retirement System can fight inflation with a structure of investments that will protect and grow their nest eggs during uncertain times. To learn more, call 1-800-722-9728 or contact a licensed retirement phase specialist online by filling out the contact form on the Crash Proof Retirement website.