Colombia : What is happening with the world economy?

Today the world is struggling with seemingly contradictory news. On the one hand, high, persistent and generalized inflation, which has led Central Banks to raise interest rates. On the other hand, the global economy is slowing down and there is even mention of the risk of a recession. What is happening in the world?

Key points

• Key points:
• With the pandemic, households reduced their consumption and, likewise, companies closed and therefore their production decreased. The gradual opening up of the economy allowed a new incentive for household spending, supported by government subsidies.
• Given the timing of normalization of operations and the disparities in the development of the pandemic in different countries, supply did not have the capacity to respond to demand, causing an increase in inflation on the supply side.
• Uncertainty about inflation expectations led Central Banks to raise interest rates and, given the context, increased expectations of a possible recession.
• In the short term, precise economic policies will be needed to avoid an inflationary spiral or a sharp recession. In the medium term, a return to supply-side policies will be necessary.

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