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.