Global Recession Risk Is Rising, World Bank Warns

Global Recession Risk Is Rising, World Bank Warns

By Yuval Rosenberg and Michael Rainey
Thursday, September 15, 2022

Relief on Thursday as the White House announces a tentative deal to avoid a potentially crippling rail strike. Among other issues, rail workers were seeking up to 15 days of paid sick leave – they currently have none – and the proposed agreement with owners provides … one day. So we’ll see if workers are willing to accept the offer, but for now, the crisis appears to have been averted.

Here’s what else is going on.

Global Recession Risk Is Rising, World Bank Warns

Central bankers all over the world are tightening financial conditions at the same time, and that’s raising the risk of a global recession in the near future, the World Bank said Thursday.

“The global economy is in the midst of one of the most internationally synchronous episodes of monetary and fiscal policy tightening of the past five decades,” analysts at the World Bank wrote. “These policy actions are necessary to contain inflationary pressures, but their mutually compounding effects could produce larger impacts than intended, both in tightening financial conditions and in steepening the growth slowdown.”

Modeling recent trends in the economy and the decisions of policymakers, World Bank analysts Justin-Damien Guenette, M. Ayhan Kose and Naotaka Sugawara laid out three possible scenarios for the next two years. In the baseline scenario, monetary policy unfolds as currently expected, with central bank rates rising to a range near 4%, enough to slow global economic growth – but not enough to bring inflation down to the desired target range. Inflation (as measured by a weighted global average) remains elevated, falling gradually from 4.6% in 2023 to 3.2% in 2024, still above the global target of 2.5%.

In the second scenario, inflation expectations drift upward and policymakers take stronger-than-expected steps to contain price increases, causing a “sharp downturn” that does not result in a global recession but also does not get inflation under control within the desired timeframe. Global growth recovers in 2024, but at a relatively anemic 2.7% rate, below the 3% rate economists would expect otherwise.

In the third scenario, interest rates move even higher, causing a re-pricing of risk in the markets while sparking a global recession in 2023. Inflation drops rapidly to 3% but starts creeping higher in 2024 in a sluggish recovery hampered by policymakers’ hesitation to deploy countercyclical measures.

A “difficult balancing act”: Policymakers must walk a narrow path to restore price stability while avoiding a global recession. The analysts concluded their study with recommendations for how to proceed along that path. Among other things, the analysts called on central bankers to be aware that their national policies could have spillover effects, producing more severe outcomes on the global level than intended.

In addition, policymakers need to help ease the constraints on the supply of goods, labor and energy that are contributing to inflationary pressure around the world – and that threaten to spark new conflicts. “One of the most pressing priorities in this context is the need to renew support for a rules-based international economic order, guarding against the threat of protectionism and fragmentation that could further disrupt trade networks,” the analysts said.

With Deadline Looming, Congress Debates Controversial FDA User Fee Program

Congress is nearing a September 30 deadline to reauthorize the user fee program under which pharmaceutical companies and medical device makers provide a substantial portion of the Food and Drug Administration’s funding.

“The fees have soared since the program’s inception three decades ago and now make up nearly half of the F.D.A.’s budget and finance 6,500 jobs at the agency,” Christina Jewett of The New York Times reports. “The pharmaceutical industry funding alone has become so dominant that last year it accounted for three-quarters — or $1.1 billion — of the agency’s drug division budget.”

A debate over user fees: Now with the five-year renewal deadline approaching, the specifics of the program — and its potential drawbacks — are being debated, as Jewett details: “The powerful pharmaceutical lobby says its role in funding the agency has helped speed approvals of lifesaving drugs to the market by providing it with the resources to do the work. But advocates for patients and doctors say the agreements have enabled the industry to weaken the approval process meant to ensure that drugs are safe and effective. … For its part, the F.D.A. said the user fee process had given it authority to improve public health by expanding oversight of foreign drugmakers, allowing hearing aids to be sold over the counter and monitoring drug shortages.” Yet Dr. Robert Califf, who heads the F.D.A., has acknowledged the program's pitfalls, reportedly saying at a news conference this summer that, philosophically, he wished the agency’s funding came from taxpayer money rather than user fees.

The numbers: The Food and Drug Administration’s budget for fiscal year 2021 was about $6.1 billion, with $3.3 billion of that, or 54%, provided by federal budget authorization and the rest (about $2.8 billion, or 46%) coming from user industry fees.

The background: “The FDA bill usually gets bipartisan support but hit a roadblock in July, when Senate Committee on Health, Education, Labor and Pensions Ranking Member Richard Burr (R-N.C.) demanded the removal of policy riders he deemed unnecessary to the legislation,” Victoria Knight wrote at Axios this week. Burr, and the drug industry lobby, objected to an amendment that would speed up the approval process for generic drugs, a measure that the Congressional Budget Office reportedly estimated could save taxpayers $546 million over 10 years.

The bottom line: The controversial user fee program has its defenders and its critics. “It’s kind of like a devil’s bargain,” Dr. Joseph Ross, a professor at the Yale School of Medicine, told the Times, adding that he thinks the program isn’t good for the agency “because it turns this every-five-year cycle into the F.D.A. essentially asking industry, ‘What can we do to secure this money?’” As the debate plays out this month amid calls for F.D.A. reforms, thousands of jobs may also be on the line.

Biden Approval Rating Jumps

Support for President Joe Biden has rebounded from lows recorded this past summer, according to a new poll from The Associated Press-NORC Center for Public Affairs Research.

Support for Biden hit a low of 36% in July, but jumped to 45% in the most recent poll, conducted from September 9 to 12.

“The improvement in Biden’s ratings is largely driven by renewed support among Democrats,” the pollster said. “Seventy-eight percent of Democrats approve of Biden’s job performance, up from 65% in July and 72% in June.”

The public’s outlook on the country’s direction improved too, though still remains quite negative. Overall, 27% of poll respondents said they think the country is headed in the right direction – a low number, for sure, but a marked improvement on the 14% who said the same in June.

Views of the economy improved a bit, as well, with 29% of respondents saying they think the economy is good, up from 20% in June.


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