High inflation rises risk of global recession by end of year

As the risks of global recession are elevated against the backdrop of Russia's invasion of Ukraine and Covid-19 shutdowns in China, the world economy is en route to a step back by the end of the year.

A growing number of economists and analysts have flagged concerns about economic recession and the rising dangers of a downturn as surveyed by Bloomberg reporting.

The White House's top economic adviser Brian Deese said Monday the US faces a lot of uncertainty, while refraining from laying odds on a recession.

On Tuesday, Peterson Institute said in a report set for publication that a combination of factors - including oil prices skyrocketing following the war in Europe, a consumer pullback amid the highest prices in four decades and slowing China growth - has increased the chances of a contraction.

The Washington-based think tank said the global growth will slow to 3.3% this year and next, compared with 5.8% in 2021 and the US is forecast to grow 3% this year and 2% in 2023.

PIIE's estimate is in line with most major forecasts, with economists seeing annualized US growth averaging 3.3% this year followed by a step down to 2.2%, according to a Bloomberg survey in April. 

"After a year of recovery from pandemic-related weakness, nearly all countries are seeing a significant slowing of economic growth," Karen Dynan, PIIE senior fellow and former US Treasury Department chief economist, said in the report. 

Following a rebound as countries reopened after pandemic lockdowns, and government stimulus in the US, economies are hitting headwinds: Consumers are struggling to accept elevated prices and supply chain issues have cut goods delivery. 

Russia's invasion of Ukraine further exacerbated these problems, while China has locked down several major regions as the government contends with outbreaks of the coronavirus, moves set to slow economic growth there.

Core US inflation will ease to 4.1% this year and ease further to 3% in 2023, according to PIIE -- still above the Federal Reserve's 2% target. Consumer prices excluding energy and food skyrocketed 6.6% in March from a year earlier, according to economist forecasts for data due for release Tuesday morning.

Fed policymakers tightened interest rates by a quarter-point and pencilled in seven more increases this year. While that should help cool prices, the Fed risks over-correcting, PIIE said.

Tighter policy would curb demand for workers, with shortages easing and pushing up the unemployment rate to 4.5%, above the pre-pandemic period, according to the group.