The Associated PressFRANKFURT, GERMANY — The global economy must steer through a precarious recovery this year and next as inflation keeps dragging on household spending and higher interest rates weigh on growth, banks and markets.
The path ahead is fraught with risks, from escalation of Russia’s war in Ukraine – with a dam collapse Tuesday that the sides blamed on each other – to debt troubles in developing countries and rapid interest rate hikes having unforeseen effects on banks and investors. Meanwhile, China’s reopening after drastic pandemic measures has provided a boost to global activity.
Those levels would provide some relief but are still above the two per cent inflation targets for the European Central Bank and U.S. Federal Reserve, which have been rapidly raising interest rates to fight inflation. That increases the cost of borrowing to buy houses and invest in business expansion.
Countries that spent on pandemic relief for households and businesses already are grappling with higher public debt and now have the added burden of more expensive costs to pay it down.The U.S. is facing challenges from higher borrowing costs in rate-sensitive areas like housing construction and manufacturing. As demand slows, unemployment is expected to gradually rise toward 4.5 per cent in 2024 – up from 3.7 per cent in May.
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