Global Recession Is Imminent: Are Central Banks Prepared?

Economists around the globe argue that central banks need the help of lawmakers in the event of economic downturn.

Research into the global economy provides that a recession is inevitable, as manufacturing and trade uncertainty in the United States remains, the unemployment rate increases and industrial production slows in Germany, and weak factory production and waning exports heighten vulnerability in Japan, The New York Times reported.

Economists are becoming increasingly pessimistic that political constraints in the U.S. and Europe will dampen central banks’ ability to stimulate economies during the next downturn. Interest rates sit below zero in Japan and Europe while they remain in historical lows in the U.S.

Christine Lagarde, who has been nominated to succeed the head of the European Central Bank, Mario Draghi, warned that “High public debt and low interest rates have left many countries with limited policy room for maneuver.” She believes that in the event of a downturn, monetary policy and fiscal stimulus must be implemented decisively.

While Draghi announced that the ECB was ready to revive stimulus measures used during the eurozone debt crisis, the Fed in the U.S. is considering acting sooner rather than later.

Jerome Powell aligns with Draghi’s sentiments and said, “It’s not good to have monetary policy be the main game in town, let alone the only game in town,” as America’s budget deficit is expected to surpass $1 trillion this year due to recent tax cuts and increased spending, supported by Republican lawmakers.

Central bank leaders have warned that their effectiveness is limited without help from fiscal authorities.

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