The global economy is on the verge of falling into recession next year as countries have taken the wrong currency management path in response to the US Federal Reserve's aggressive policy rate hikes, a Thai economist warns.
Kobsak Pootrakool, chairman of the Federation of Thai Capital Market Organizations (Fetco), said the Fed's policy of lifting rates has adversely affected stocks, bonds, gold, cryptocurrency, commodities and currencies globally, with the US dollar the only exception.
The real economy is dealing with high inflation and its impact is spreading from a small circle of investors to consumption, manufacturing and exports, as well as corporate earnings, he said.
"The issue has spread from Wall Street to Main Street, affecting everyone from investors to ordinary citizens. The latest Purchasing Managers' Index figures from many countries including the US, UK, Japan and China have declined from a year ago," said Mr Kobsak, who is also senior executive vice-president at Bangkok Bank.
The US economy is now projected to grow only 0.2% this year, sharply down from a previous forecast of 4%, while the unemployment rate is predicted to rise to 4.4% in 2023, from the current 3.5%.
There are also sharp falls in asset prices, he said. The Fed, however, has insisted it "can't quit until the job is done".
As the damage from this hawkish Fed policy has begun to spread, Mr Kobsak said ordinary individuals will be affected by the global recession and its aftermath.
In Thailand, the baht has depreciated from 32 to the dollar early this year to 37-38 baht at present, while the value of the country's exports has fallen for three months in a row even as the baht weakens.
Policymakers in some countries have taken the wrong path, making the problem worse and destroying confidence, he said. In the UK, the new government announced tax cuts to stimulate the economy while the Bank of England moved to curb inflation with a mistaken policy, he said. Those moves badly damaged the British bond market and the pound.
Japan spent around 700-800 billion baht to intervene in its exchange rate, but the yen has continued to depreciate and now trades at 146 to the dollar.
Turkey and Colombia are other examples of "policy mistakes", said Mr Kobsak. The Turkish currency has weakened from 8-9 lira to the greenback last year to 18.5 lira per dollar now, while inflation in the country rose from about 17-18% to the current 83.5%.
Colombian President Gustavo Petro said his government is considering imposing a tax on capital outflows in an attempt to curb such movements. That statement weakened the peso, pushing it down to 4,500 pesos to the dollar, from 3,800.
"These four countries are just a preview of policy mistakes," said Mr Kobsak. "This is a critical situation and there will be more mistakes, which will make the crisis worse, escalating it to the next level."
As many developing countries have been unable to handle the crisis on their own due to a lack of liquidity, they have increasingly turned to the International Monetary Fund (IMF) for help. Such countries include Sri Lanka, Bangladesh, Pakistan, Laos, Myanmar, Ghana, Zambia, Argentina, Egypt and Chile.
Recent data showed the IMF's provision of funding to its members has reached a record high.
"That is not a surprise given the strong dollar, rising interest rates and capital outflows," he said.
In many countries, exports have declined, while energy and food prices are high, leading to greater trade deficits and falling foreign reserves.
The latest data shows global central bank reserves have fallen to US$12 trillion, from $13 trillion in the first half of 2022. Foreign reserves are expected to continue to shrink in the last three months of this year, said Mr Kobsak.
"This is a tipping point of the crisis, moving from the Fed and central banks to the real economy, governments and the IMF. We are entering a perfect storm," he said.