A street market in Istanbul, Turkey. Despite the relentless increase in rates over the past 18 months, inflation in many top economies remains stubbornly high. AP
A street market in Istanbul, Turkey. Despite the relentless increase in rates over the past 18 months, inflation in many top economies remains stubbornly high. AP
A street market in Istanbul, Turkey. Despite the relentless increase in rates over the past 18 months, inflation in many top economies remains stubbornly high. AP
A street market in Istanbul, Turkey. Despite the relentless increase in rates over the past 18 months, inflation in many top economies remains stubbornly high. AP

Global economy at 'crucial and perilous' point in inflation fight, BIS says


Deepthi Nair
  • English
  • Arabic

The global economy is now at a “crucial and perilous” point as countries struggle to control inflation, according to the Bank for International Settlements (BIS), the group of the world’s largest central banks.

Despite the relentless increase in rates over the past 18 months, inflation in many top economies remains stubbornly high, while the jump in borrowing costs triggered the most serious banking collapses since the financial crisis 15 years ago, the Switzerland-based organisation said in its annual report published on Sunday.

“The global economy has reached a critical and perilous juncture. Policymakers are facing a unique constellation of challenges. Each of them, taken in isolation, is not new; but their combination on a global scale is,” the BIS said.

“On the one hand, central banks have been tightening to bring inflation back under control: prices are rising far too fast. On the other hand, financial vulnerabilities are widespread: debt levels – private and public – are historically high; asset prices, especially those of real estate, are elevated; and risk-taking in financial markets was rife during the phase in which interest rates stayed historically low for unusually long. Indeed, financial stress has already emerged.”

The world economy is set to grow at a slower pace as continued monetary policy tightening to rein in inflation is expected to crimp development, the World Bank said in its latest Global Economic Prospects report.

Growth has been forecast at 2.1 per cent this year, down from 3.1 per cent last year, before recovering to 2.4 per cent in 2024, the Washington-based lender said.

Tight global financial conditions and subdued external demand are expected to weigh on growth across emerging markets and developing economies, it added.

This month, the US Federal Reserve paused increasing US interest rates to assess its tightening cycle on the economy, but signalled that it would resume raising rates again later this year.

The Federal Reserve has been aggressively increasing interest rates since March last year to tame consumer prices that hit a 40-year high in 2022.

Meanwhile, the Bank of England raised interest rates by 0.5 percentage points to 5 per cent last week, a day after figures showed inflation remained at 8.7 per cent in May.

Globally, inflation will decrease to 7 per cent this year and 4.9 per cent in 2024, from 8.7 per cent in 2022, according to International Monetary Fund estimates.

In the short term, the global economy could overcome the obstacles it is facing, the BIS report said.

However, both short- and long-term hazards are lurking along the way and policies will be the deciding factor, the organisation added.

“The priority for monetary policy is to bring inflation back to target. The longer inflation is allowed to persist, the greater the likelihood that it becomes entrenched and the bigger the costs of quenching it,” according to the report.

Central banks face three challenges in bringing inflation back to target. First, there exists limited guidance from historical statistical relationships when a transition to a high-inflation regime threatens, the BIS said.

Second, the transmission mechanism of monetary policy is clouded by the exceptional post-pandemic conditions, forcing many central banks to pause to better assess the impact of the tightening so far.

Finally, further financial system stress could emerge. If the stress is acute, addressing it without compromising the fight against inflation will require the active support of other prudential and fiscal policies, the BIS added.

“The priority for fiscal policy is to consolidate. Consolidation would provide critical support in the inflation fight,” the report suggested.

“It would also reduce the need for monetary policy to keep interest rates higher for longer, thereby reducing the risk of financial instability.”

Policymakers will have to focus on two short-term challenges: restoring price stability and managing any financial risks that may materialise, the BIS said.

Inflation could turn out to be more stubborn than currently anticipated, and it has substantially eroded purchasing power. Wage demands have been rising in a number of countries, the bank pointed out.

“Historically high private indebtedness and elevated asset valuations can heighten the sensitivity of private expenditures to higher interest rates,” it said.

Inflation around the world – in pictures

  • People queue to buy wheat flour at government-controlled prices in Islamabad. Pakistan's economy has been hit hard by a political crisis, as well as devastating floods and the global energy crisis, with the rupee plummeting and inflation at decades-high levels. AFP
    People queue to buy wheat flour at government-controlled prices in Islamabad. Pakistan's economy has been hit hard by a political crisis, as well as devastating floods and the global energy crisis, with the rupee plummeting and inflation at decades-high levels. AFP
  • A market in Rio de Janeiro. Brazil's inflation ended 2022 with a sharp slowdown from double-digit peaks seen throughout the year. Reuters
    A market in Rio de Janeiro. Brazil's inflation ended 2022 with a sharp slowdown from double-digit peaks seen throughout the year. Reuters
  • A market in Istanbul. Turkey's inflation at the end of 2022 stood at 64. 27 per cent, the country's Statistical Institute said, while the independent group of inflation researchers ENAG calculated it at 137. 55 per cent. EPA
    A market in Istanbul. Turkey's inflation at the end of 2022 stood at 64. 27 per cent, the country's Statistical Institute said, while the independent group of inflation researchers ENAG calculated it at 137. 55 per cent. EPA
  • A Walmart in New Jersey. According to a poll, US Republicans and Democrats have distinct views of what’s most important for the government to address amid high inflation. More Republicans name gas and food prices, energy and immigration, while Democrats focus on health care, climate change and poverty. AP
    A Walmart in New Jersey. According to a poll, US Republicans and Democrats have distinct views of what’s most important for the government to address amid high inflation. More Republicans name gas and food prices, energy and immigration, while Democrats focus on health care, climate change and poverty. AP
  • A used car sales lot in California. US Federal Reserve officials have indicated it’s possibly too early to declare victory over inflation. AFP
    A used car sales lot in California. US Federal Reserve officials have indicated it’s possibly too early to declare victory over inflation. AFP
  • A person walks by a sign showing interest rates at a bank in New York. EPA
    A person walks by a sign showing interest rates at a bank in New York. EPA
  • A woman walks with purchases past a store in Berlin. In December, consumer price growth across the Euro zone slowed to 9.2 per cent from 10.1 per cent a month earlier, Eurostat data showed last week. AP
    A woman walks with purchases past a store in Berlin. In December, consumer price growth across the Euro zone slowed to 9.2 per cent from 10.1 per cent a month earlier, Eurostat data showed last week. AP
  • Workers sit in front of a banner reading "Stop the Inflation Monster" at the Burchardkai Container Terminal as they go on strike for higher wages at the harbour in Hamburg, Germany. Reuters
    Workers sit in front of a banner reading "Stop the Inflation Monster" at the Burchardkai Container Terminal as they go on strike for higher wages at the harbour in Hamburg, Germany. Reuters
  • Price tags at a market in Nice, France. Reuters
    Price tags at a market in Nice, France. Reuters
  • Commuters cross Waterloo Bridge in London. The British Retail Consortium said spending in store chains rose by 6.9 per cent in annual terms in December, but this was a long way off consumer price inflation, which hit 10.7 per cent in November. Reuters
    Commuters cross Waterloo Bridge in London. The British Retail Consortium said spending in store chains rose by 6.9 per cent in annual terms in December, but this was a long way off consumer price inflation, which hit 10.7 per cent in November. Reuters
  • Jobseekers in Johannesburg. South Africa’s governing party wants the central bank’s mandate broadened to shore up the economy and promote employment in addition to its existing task of tackling inflation. Reuters
    Jobseekers in Johannesburg. South Africa’s governing party wants the central bank’s mandate broadened to shore up the economy and promote employment in addition to its existing task of tackling inflation. Reuters
  • Social grant recipients stand in a queue outside a post office, as joblessness takes its toll in Meadowlands, South Africa. Reuters
    Social grant recipients stand in a queue outside a post office, as joblessness takes its toll in Meadowlands, South Africa. Reuters

“Higher interest rates, a turn in the financial cycle and an economic slowdown would eventually raise credit losses. These, in turn, could generate further strains in the financial system.”

The BIS also warned that it is quite common for banking stress to emerge following a tightening of monetary policy.

The incidence rises considerably when initial debt levels are high, real estate prices are elevated or the increase in inflation is stronger – the current episode ticks all the boxes, it added.

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Essentials
The flights: You can fly from the UAE to Iceland with one stop in Europe with a variety of airlines. Return flights with Emirates from Dubai to Stockholm, then Icelandair to Reykjavik, cost from Dh4,153 return. The whole trip takes 11 hours. British Airways flies from Abu Dhabi and Dubai to Reykjavik, via London, with return flights taking 12 hours and costing from Dh2,490 return, including taxes. 
The activities: A half-day Silfra snorkelling trip costs 14,990 Icelandic kronur (Dh544) with Dive.is. Inside the Volcano also takes half a day and costs 42,000 kronur (Dh1,524). The Jokulsarlon small-boat cruise lasts about an hour and costs 9,800 kronur (Dh356). Into the Glacier costs 19,500 kronur (Dh708). It lasts three to four hours.
The tours: It’s often better to book a tailor-made trip through a specialist operator. UK-based Discover the World offers seven nights, self-driving, across the island from £892 (Dh4,505) per person. This includes three nights’ accommodation at Hotel Husafell near Into the Glacier, two nights at Hotel Ranga and two nights at the Icelandair Hotel Klaustur. It includes car rental, plus an iPad with itinerary and tourist information pre-loaded onto it, while activities can be booked as optional extras. More information inspiredbyiceland.com

Our family matters legal consultant

Name: Hassan Mohsen Elhais

Position: legal consultant with Al Rowaad Advocates and Legal Consultants.

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Need to know

The flights: Flydubai flies from Dubai to Kilimanjaro airport via Dar es Salaam from Dh1,619 return including taxes. The trip takes 8 hours. 

The trek: Make sure that whatever tour company you select to climb Kilimanjaro, that it is a reputable one. The way to climb successfully would be with experienced guides and porters, from a company committed to quality, safety and an ethical approach to the mountain and its staff. Sonia Nazareth booked a VIP package through Safari Africa. The tour works out to $4,775 (Dh17,538) per person, based on a 4-person booking scheme, for 9 nights on the mountain (including one night before and after the trek at Arusha). The price includes all meals, a head guide, an assistant guide for every 2 trekkers, porters to carry the luggage, a cook and kitchen staff, a dining and mess tent, a sleeping tent set up for 2 persons, a chemical toilet and park entrance fees. The tiny ration of heated water provided for our bath in our makeshift private bathroom stall was the greatest luxury. A standard package, also based on a 4-person booking, works out to $3,050 (Dh11,202) per person.

When to go: You can climb Kili at any time of year, but the best months to ascend  are  January-February and September-October.  Also good are July and August, if you’re tolerant of the colder weather that winter brings.

Do not underestimate the importance of kit. Even if you’re travelling at a relatively pleasant time, be geared up for the cold and the rain.

Classification of skills

A worker is categorised as skilled by the MOHRE based on nine levels given in the International Standard Classification of Occupations (ISCO) issued by the International Labour Organisation. 

A skilled worker would be someone at a professional level (levels 1 – 5) which includes managers, professionals, technicians and associate professionals, clerical support workers, and service and sales workers.

The worker must also have an attested educational certificate higher than secondary or an equivalent certification, and earn a monthly salary of at least Dh4,000. 

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TERMINAL HIGH ALTITUDE AREA DEFENCE (THAAD)

What is THAAD?

It is considered to be the US's most superior missile defence system.

Production:

It was created in 2008.

Speed:

THAAD missiles can travel at over Mach 8, so fast that it is hypersonic.

Abilities:

THAAD is designed to take out  ballistic missiles as they are on their downward trajectory towards their target, otherwise known as the "terminal phase".

Purpose:

To protect high-value strategic sites, such as airfields or population centres.

Range:

THAAD can target projectiles inside and outside the Earth's atmosphere, at an altitude of 150 kilometres above the Earth's surface.

Creators:

Lockheed Martin was originally granted the contract to develop the system in 1992. Defence company Raytheon sub-contracts to develop other major parts of the system, such as ground-based radar.

UAE and THAAD:

In 2011, the UAE became the first country outside of the US to buy two THAAD missile defence systems. It then stationed them in 2016, becoming the first Gulf country to do so.

Results

2pm: Al Sahel Contracting Company – Maiden (PA) Dh50,000 (Dirt) 1,200m; Winner: AF Mutakafel, Tadhg O’Shea (jockey), Ernst Oertel (trainer)

2.30pm: Dubai Real Estate Centre – Maiden (TB) Dh60,000 (D) 1,200m; Winner: El Baareq, Antonio Fresu, Rashed Bouresly

3pm: Shadwell – Rated Conditions (TB) Dh100,000 (D) 1,950m; Winner: Lost Eden, Andrea Atzeni, Doug Watson

3.30pm: Keeneland – Handicap (TB) Dh84,000 (D) 1,000m; Winner: Alkaraama, Dane O’Neill, Musabah Al Muhairi

4pm: Keeneland – Handicap (TB) Dh76,000 (D) 1,800m; Winner: Lady Snazz, Saif Al Balushi, Bhupat Seemar

4.30pm: Hive – Conditions (TB) Dh100,000 (D) 1,600m; Winner: Down On Da Bayou, Royston Ffrench, Salem bin Ghadayer

5pm: Dubai Real Estate Centre – (TB) Handicap Dh64,000 (D) 1,600m; Winner: Lahmoom, Royston Ffrench, Salem bin Ghadayer

Updated: June 25, 2023, 12:09 PM