Jakarta, CNBC Indonesia – Recession is a word that has been talked about a lot lately. After the corona virus pandemic (Coronavirus Disease-2019/Covid-19) subsided, it turns out that life is still not good.
In general, a recession occurs when the economy contracts or grows negatively for two consecutive quarters. Recently, the world experienced a recession due to the Covid-19 pandemic, which disrupted the activities and mobility of billions of people. Without human activity and mobility, the economy is in ‘ suspended animation’.
Having just recovered, the world is faced with a new problem. It was the Russo-Ukrainian war that complicated the situation. The war that has been going on since February 24 has soared commodity prices.
Understandably, Russia and Ukraine are the main producers of a number of commodities. Oil and gas, mining, to food are widely produced in these two countries.
The war, plus the sanctions embargo on Russia, made commodity prices soar far and fly high. As a result, prices for food and manufactured products have increased which has led to inflationary pressures.
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Accelerating inflation rates have left central banks in various countries with little choice. Ultra-loose monetary policies during the pandemic must be tightened, with extraordinary speed and intensity. The benchmark interest rate must rise, in order to dampen inflation expectations.
But the ‘cure’ of rising interest rates has side effects. The expansion of households and the business world will slow down, resulting in sluggish consumption and investment, ultimately suppressing economic growth.
The World Bank also gave a warning. In the 1970s, when the world experienced high inflation due to rising oil prices (oil boom), central banks in various countries have also raised their benchmark interest rates aggressively.
The side effect is extraordinary, instead of growing the economy is contracted or minus. Even to the point of causing a global recession.
“Efforts to recover at that time required a sharp increase in benchmark interest rates. However, the impact was to trigger a global recession and financial crisis in developing countries,” wrote the World Bank in the June 2022 edition of the Global Economic Prospect report.
Next Page –> Investment Guide During Recession
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