A decline in the U.S. economy will significantly impact the global economy, particularly the developing economies, Trend reports citing Xinhua.

As the U.S. real gross domestic product has contracted for two consecutive quarters, Josua Pardede, chief economist at Indonesia’s Permata Bank, told in a recent interview that the U.S. economy has shown signs of declining.

Some components of the U.S. economy, like consumption, have contracted, making inflation surge to its highest point in over four decades, said the economist.

He also said the expectation of a U.S. recession in the next 12 months will be much higher as higher inflation followed by higher interest rates will lead to lower consumption and lower investments.

The shock in the U.S. economy will slow down the global economy, and the global trade volume will be also declining, he said, noting the export performance of Indonesia and other developing countries will go down since the United States is their main trading partner.

He suggested that developing countries, including Indonesia, should mitigate or offset the impact from the slowdown in U.S. demand by finding other trading partners, strengthening the fundamentals of its domestic economy and spurring domestic consumption.

When there is a recession in the United States, risk-averse sentiment will rise, he pointed out, adding such sentiment will lead to capital outflow from the financial market, particularly in the bond market.

Foreign ownership of Indonesian government bonds has declined around 7.8 billion U.S. dollars. So basically, this leads to a weaker rupiah against the U.S. dollar, the economist said.

He further said the governments and central banks of developing countries need to take measures to stabilize the currency exchange rate.

Source: TREND News Agency