Central Banks Hike Rates Again: Global Economy Faces Slowing Growth Risk

On June 5 local time, the International Monetary Fund released its latest “World Economic Outlook” report. It noted that due to stubborn core inflation and geopolitical tensions, global GDP growth is projected to fall from 3.1% in 2024 to 2.7% in 2025. At the same time, in response to persistent price pressures and weakening growth, multiple central banks have raised their benchmark rates: the U.S. Federal Reserve lifted the federal funds rate to a range of 5.25%–5.50%, the European Central Bank raised its deposit rate to 4.00%, and the Bank of Japan modestly tightened its yield curve control. These rate hikes have cast a shadow over the global growth outlook.

In the short term, successive rate increases will quickly raise borrowing costs, dampening consumption and investment. Corporate financing rates rise, pushing up operating costs and forcing small and medium-sized enterprises to scale back expansion or delay technology upgrades. For households, mortgage and auto loan rates continue to climb, eroding disposable income and weakening consumer demand. International capital markets have also become more volatile amid higher rate expectations, exposing emerging-market assets to capital outflows, currency depreciation, and dual stress of inflation.

Viewed over the medium to long term, central banks’ tightening could accelerate global supply-chain reorganization. To avoid high financing costs and trade frictions, multinational firms may shift manufacturing and R&D to regions with more accommodative policies, altering established supply structures. While this relocation can boost local investment, it also risks structural unemployment and social governance challenges. Moreover, a high-rate environment aggravates debt burdens, particularly for developing countries whose external debt servicing costs rise, constraining public spending and infrastructure projects.

On the trade front, credit tightening and raised trade barriers under a rate-hike backdrop increase cross-border transaction costs. Financing for logistics becomes more difficult, prompting some traders to localize production or source closer to home, concentrating trade flows in regional markets. Thus, global trade diversification accelerates, but it also heightens hidden costs and risks market fragmentation.

From a macro-policy coordination standpoint, central banks must balance their own anti-inflation mandates while avoiding a “currency-tightening race.” Unilateralism and zero-sum thinking deepen policy divergences and undermine the global recovery’s resilience. Only through multilateral dialogue and coordinated macro policies—balancing inflation control with growth objectives—can sustained momentum be injected into the world economy.

In conclusion, while central banks’ rate hikes are a short-term response to stubborn inflation and slowing growth, a robust global recovery requires a more harmonized policy mix. Countries should jointly uphold an appropriately accommodative global financial environment, promoting trade and investment liberalization to energize the world economy.