KUALA LUMPUR (June 25): The prospect of a global recession on the horizon is in focus again following the US Federal Reserve’s sharp and unexpected 75-basis-point increase in the Fed funds rate and determination for more hikes, as it steps up efforts to tame skyrocketing inflation in the country.

Since early June, the Fed has also embarked on quantitative tightening, as opposed to easing, when it started scaling back its US$9 trillion balance sheet and stopped reinvesting maturing debt in its securities portfolio — effectively reducing the money supply in the system.

Elsewhere, other developed-market economies are also suffering from high levels of inflation.

The fight to keep inflation from spinning out of control in the West comes at a time when the growth of Asia’s economic engine — China — comes into question. There is also the ongoing war between Russia and Ukraine to contend with.

Amid all the noise, it is easy to believe that a global recession is imminent.

A global recession would likely see Malaysia’s external trade being negatively affected, possibly hitting investments. The ringgit is already affected by the rising interest rates in the US.

Meanwhile, the government — faced with prospects of higher interest rates, heftier debt post-pandemic and an outsized subsidies bill — may just have an alternative to reimplementing GST to bolster its coffers.

To know more, read our cover story this week by picking up a copy of the June 27, 2022 issue of The Edge Malaysia weekly at news stands today.

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