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With global trade expected to slow, the WTO warns of a possible recession

LEILA FADEL, HOST:

The World Trade Organization is warning of a sharp slowdown in global trade next year.

(SOUNDBITE OF ARCHIVED RECORDING)

NGOZI OKONJO-IWEALA: The picture for 2023 has darkened considerably.

FADEL: That's WTO Director-General Ngozi Okonjo-Iweala.

A MARTINEZ, HOST:

A decision on Wednesday by some of the most powerful oil producers around the globe to cut oil production has angered U.S. and European leaders. The move will increase pressure over energy costs for many countries.

FADEL: Paul Hannon of The Wall Street Journal joins us now with more context on this economic outlook. Hi, Paul.

PAUL HANNON: Hi, Leila.

FADEL: So, Paul, let's talk about why the World Trade Organization is warning of a global recession and how much of this is about oil prices now that OPEC+ has decided to reduce oil production.

HANNON: Well, the World Trade Organization issued its warning before the OPEC+ decision. But one of the things the WTO was worried about was high energy prices because when the price of essentials like energy and food are very high, households have much less money to spend on other goods, and that means that economic growth more broadly weakens. So the OPEC+ decision makes that a more likely outcome. It makes a global downturn a more likely outcome and will likely keep inflation higher for longer.

FADEL: OK. So this is all really hard news for people already struggling with the inflation that's here now. Are there some silver linings?

HANNON: I think the silver lining is probably in the inflation outlook. If trade flows are beginning to ease, if the global economy is beginning to cool, that should have an impact on inflation rates, which central banks have been raising their interest rates to contain. There are some indications already that inflation may have peaked at a global level. The global inflation rate has been pretty unchanged since June, although at a really high level. So, yes, there may be some relief on the way, but it's probably going to take quite a few months before people feel a return to a normal kind of level of inflation.

FADEL: And what are the biggest challenges for G-7 policymakers as they think about how to deal with this?

HANNON: It's a balance for them. On the one hand, they've clearly prioritized inflation as their, you know, enemy No. 1 This is the thing that economic policymakers need to get on top of for fear of a repeat of what happened in the 1970s. On the other hand, rising interest rates, do, you know, eat into household budgets. They do lead to higher mortgage payments, higher payments on loans of all kinds. So that can sort of double-down on the hardship that households feel and potentially make any recession deeper.

FADEL: Paul Hannon of The Wall Street Journal. Thanks, Paul.

HANNON: You're welcome. Transcript provided by NPR, Copyright NPR.