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There are several reasons for the current global inflation. Some of these reasons include rising energy and petrol prices, goods shortages, increased shipping costs, rising wages, climate impact, trade barriers, and the end of pandemic support. At its root, inflation is driven by too much demand relative to supply.

Key highlights:

1. Different countries are taking different measures to tackle inflation. Some of the common measures include monetary policy, supply-side policies, fiscal policy, exchange rate policy, income policies, and targeting money supply.
2. The Bank of England is expected to raise interest rates to reduce inflation. Canada has been successful in controlling inflation by targeting it accurately and keeping it within a specific range.
3. Asian countries are also taking measures to tackle soaring inflation.
4. According to the International Monetary Fund (IMF), global inflation is forecast to rise from 4.7 percent in 2021 to 8.8 percent in 2022 but to decline to 6.5 percent in 2023 and to 4.1 percent by 20241.
5. This rise in inflation is pushing up the prices of essential goods such as food, transport, and utilities, and more than two-thirds of people around the world are feeling the squeeze.

Some central banks have raised interest rates or reduced monetary stimulus to curb growing inflation. These measures may hinder economic development or raise borrowing costs. Global inflation has several effects on enterprises, governments, and consumers. Thus, policymakers and experts continue to closely monitor inflation patterns and determine how to manage rising price threats. To know more read our report on ‘Global Economic Prospect 2023’.

Policies must boost investment in Emerging Market and Developing Economies (EMDE) to offset the long-term growth slowdown caused by the epidemic, the invasion of Ukraine, and the rapid tightening of global monetary policy.

Some other key details are:

1. In the first half of 2022, most emerging markets and developing economies (EMDEs) experienced currency depreciation against the US dollar, with EMDEs with fiscal deficits greater than 3% of GDP experiencing eight times more depreciation, on average.
2. Larger fiscal deficits can lead to higher borrowing costs, which can lead to currency depreciation, and the impact of currency depreciation can be destabilizing for EMDEs as it can lead to inflationary pressures and make it more difficult for countries to service their external debt, limiting their ability to invest in infrastructure and other key areas of development.
3. Countries with larger fiscal deficits may be particularly vulnerable to currency depreciation and its associated economic impacts, such as higher inflation, increased borrowing costs, and reduced investment, which can have significant implications for economic growth and development in these countries.
4. Some EMDEs, such as Brazil and Turkey, have experienced significant currency depreciation in recent years, with the Brazilian real losing over 30% of its value against the US dollar since the start of 2021.
5. To mitigate the risks of currency depreciation and promote long-term economic growth, experts suggest that EMDEs should focus on strengthening their economic fundamentals, such as improving governance, investing in education and infrastructure, and reducing debt levels.

Currency depreciation can have significant implications for EMDEs, particularly those with larger fiscal deficits, as it can lead to inflationary pressures, increased borrowing costs, and reduced investment. To mitigate the risks of currency depreciation and promote long-term economic growth, EMDEs should focus on strengthening their economic fundamentals, such as improving governance, investing in education and infrastructure, and reducing debt levels. To know more read our report on ‘Global Economic Prospect 2023’.

Inflation, monetary tightening, and persistent pandemic and war worries have all contributed to a slowdown in global growth in 2022, which is a cause for concern for the global economy.

Below are some key details surrounding the economical world:

1. The global economy has been impacted by the epidemic and the global financial crisis, with growth hampered to 1.7%, the third slowest rate in over three decades.
2. Emerging markets and developing economies are struggling due to the weakness of major economies like the US, the eurozone, and China, which may lead to investment and corporate defaults due to slow development, tightening financial circumstances, and heavy debt.
3. Synchronized policy tightening was implemented to control excessive inflation, worsening financial conditions, and the Russian Federation’s invasion of Ukraine, reducing global growth by 1.3 percentage points.
4. National policymakers must target budgetary support to vulnerable populations, anchor inflation expectations, and protect financial institutions due to limited policy headroom.
5. Policies must also boost EMDE investment to offset the long-term growth slowdown caused by the epidemic, the invasion of Ukraine, and the rapid tightening of global monetary policy.
6. The global outlook has deteriorated markedly throughout 2022 amid high inflation, aggressive monetary tightening, and uncertainties from both the war in Ukraine and the lingering pandemic.
7. The global cost-of-living crisis, particularly for the most vulnerable groups, is being triggered by soaring food and energy prices that are eroding real incomes.
8. The global economy is projected to grow between 2.5 and 2.8 percent in 2022, a substantial downward revision from previous forecasts.
9. Rising government borrowing costs and large capital outflows are exacerbating fiscal and balance of payments pressures in many developing countries, with growth weakening in the world’s three largest economies (the US, China, and the EU) and significant spillovers to other countries.
10. Most forward-looking indicators suggest a further slowdown in global growth, though the baseline forecast for 2023 is highly uncertain.
11. Need for national policymakers to target budgetary support to vulnerable populations, anchor inflation expectations, and protect financial institutions due to limited policy headroom
12. Need for policies to boost EMDE investment to offset the long-term growth slowdown caused by the epidemic, the invasion of Ukraine, and the rapid tightening of global monetary policy
13. Need for new international investment and repurposing obsolete farm and petroleum subsidies.

The global economy has been facing challenges in recent years, with slow growth, inflationary pressures, and geopolitical tensions. The COVID-19 pandemic has further exacerbated these issues, causing a global recession and financial strain on emerging markets and developing economies. The outlook for the future remains uncertain, with many countries grappling with the effects of the pandemic, rising inflation, and tightening financial conditions. We have prepared an in-depth report, Global Economic Prospect 2023, revolving around what the future of economic growth would look like.