HONG KONG - The world economy is showing signs of a rapid downshift as it contends with a series of shocks - some of them self-inflicted by policymakers - increasing the likelihood of another global recession and the danger of major financial disruptions.

"We're living through a period of elevated risk," former United States treasury secretary Lawrence Summers told Bloomberg Television, for whom he is a paid contributor. "In the same way that people became anxious in August of 2007, I think this is a moment when there should be increased anxiety."

At the heart of the strain: The fallout from the most aggressive hiking of interest rates since the 1980s.

Having failed to foresee the surge in inflation to multi-decade highs, the United States Federal Reserve and most peers are now lifting rates at speed in a bid to restore price stability and their own credibility.

Evidence of the impact - and of the blow to consumers' purchasing power from soaring prices - is mounting quickly.

In the past several days, Nike reported a surging stockpile of unsold product, FedEx shocked with a warning on delivery volumes and key chipmaker South Korea saw the first drop in semiconductor output in four years as demand retreats.

Apple is backing off plans to boost output of its new iPhones, Bloomberg reported.

Inflation data showcase the need for, as Fed vice-chair Lael Brainard put it on Friday, "avoiding pulling back prematurely" on tightening.

She spoke shortly after the Fed's preferred measure of prices jumped more than forecast. Earlier, data showed euro zone inflation has punched into double digits.

Layered on top of continuing reverberations from the Russian invasion of Ukraine, the spreading economic gloom is sowing fear in financial markets, creating its own worrying dynamic.

A rapidly appreciating dollar, supercharged by the Fed, may help cool US inflation, but it drives it up elsewhere by weakening other currencies - pressuring the authorities to restrain their own economies.

"The global economy is in the eye of a new storm," Reserve Bank of India governor Shaktikanta Das said on Friday after lifting rates again.

Prospects for a second global recession so soon after the 2020 downturn triggered by the Covid-19 pandemic were hardly apparent a year ago.

But Europe's Russian-induced energy crisis, and China's deepening property slump and continued Covid-Zero approach were not part of the consensus outlook.

Not all is dark, with US job market resilience a notable feature.

But the plans by Facebook parent Meta Platforms for the first reduction in headcount ever illustrate how that may still change.

And Britain's experience in recent days showcases how investors are in a mood to punish policymakers pursuing approaches deemed unsustainable.

The Bank of England was forced to intervene in its bond market after the new British government announced US$45 billion (S$65.5 billion) of unfunded tax cuts.

"Markets are concerned about fiscal policies becoming even looser despite inflation, or the dollar, getting excessively strong," said CCB International Securities head of macro research Li Cui.

Nike's troubles showed how the dollar's appreciation is causing issues not just for developing nations that issued debt in the US currency - Sri Lanka, Pakistan and Argentina are among those turning to the International Monetary Fund for help - but also for American multinational companies.

The athletics wear giant on Thursday downgraded its outlook, citing foreign exchange effects and higher freight costs, which are a symptom of supply chain delays and port congestion.

That is besides the need to embrace price markdowns given unsold stock.

North American inventories climbed 65 per cent in the three months through August.

Housing markets are also turning, walloped by surging mortgage rates.

The US in the past week saw the first decline in home prices in a decade.

"The question is how low growth will go, and for how long it will stay down," said S&P Global chief economist Paul Gruenwald.

Perhaps the biggest X-factor is the potential for financial turmoil as the dollar, which has appreciated almost 14 per cent this year as measured by the Bloomberg Dollar Spot Index, exerts pressure across markets.

Combine that with rapid increases in borrowing costs, and it spells the potential for trouble.

Dr Summers, the former Treasury chief, said: "You can never be certain about what the consequences of that will be."

That has echoes of the summer of 2007, when the impact of the collapsing US housing market first began showing up in the financial system, with the closure of a number of funds and sudden liquidity shortfalls among banks.

Things eventually morphed the following year into the worst financial crisis since the Great Depression.

Given the need to address inflation, diminished fiscal space in the wake of record spending on the pandemic, and varying priorities across major economies, the potential for joint action to address challenges may be in question.

"The incoherent macro policies within countries and absence of policy coordination across countries are both problematic," said CCB's Dr Li. BLOOMBERG