This paper seeks to address the reasons why the world economy may be headed towards a synchronised recession in the near future and why governments and central banks, particularly in developed countries, are not ready for it.
This paper seeks to address the reasons why the world economy may be headed towards a synchronised recession in the near future and why governments and central banks, particularly in developed countries, are not ready for it. This rests on the claim that most developed countries seem to have exhausted the traditional channels through which they can mitigate the consequences of a potential recession. Governments and central banks have not been able to reverse the expansionary policies they adopted during the 2008 global financial crisis. Interest rates have remained very low in many major economies while public debt has reached unprecedented levels globally. So, unlike the 2008 crisis, governments and central banks do not have proper fiscal and monetary arsenals at their disposal, which countries normally use to fight recessions. Therefore, the global economy may be facing a potential deadlock, which, according to some economists, will lead to a deep paradigm shift in policy making.
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