Minister of Finance Worried as the US Officially in Recession

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The United States economy shrank for the second straight quarter. This ensures they are hit by a recession. According to this, Finance Minister Sri Mulyani Indrawati stated that high inflation and recession in the United States signaled the threat of a weakening global economy. How could that be?

According to Sri Mulyani Indrawati, the weakening of the global economy will inevitably occur as various countries will carry out policy responses.

US economic growth minus 0.9 percent in the second quarter of 2022. Quoted from NPR, the US economy has contracted in two consecutive quarters.

In the first quarter of 2022, the US gross domestic product (GDP) was recorded at 1.6 percent (YoY), or a decrease compared to the previous period.

“If the increase in interest rates and liquidity is strong enough, then the global economy will weaken,” said Sri Mulyani at the 7th Anniversary of PKN STAN in Jakarta, quoted on Friday (29/7/2022).

Sri Mulyani explained that various countries would issue measures such as tightening liquidity and raising interest rates as a policy response to high inflation in the US.

For information, the United States Central Bank or The Fed has again decided to raise the benchmark interest rate by 75 basis points so that it raises interest rates to 2.25-2.5 percent in July 2022.

According to the Minister of Finance, the steps to tighten liquidity and increase interest rates will also cause capital outflows so that the global economic slowdown cannot be avoided.

The US itself experienced inflation reaching 9.1 percent which was the highest in the last 40 years due to the food and energy crisis. The food and energy crisis occurred as a result of the war between Russia and Ukraine, which are the world’s largest producers of these two commodities.

Sri Mulyani emphasized that the US recession will affect Indonesia considering that the country is an export destination.

“So if they weaken, the demand for exports will fall and commodity prices will also fall,” he said.