Experts have warned that the global economy is at risk of a recession in 2023 as trade tensions and slowing growth put pressure on the world’s financial system, Sanchit Gupta reports.
The World Bank recently warned that central banks worldwide are raising interest rates simultaneously to fight persistent inflation, which could lead to a global recession. According to a TWB representative, even a minor blow to the global economy in the next year could push it into a recession since the United States, China, and the eurozone have all slowed substantially.
It asserted that the global economy was currently going through its steepest slowdown following a post-recession recovery since 1970 and that consumer confidence had already fallen more precipitously than in the years preceding previous global recessions.
David Malpass, president of the World Bank, worries that these patterns will continue and have terrible effects on emerging and developing economies. He said, “Global growth is slowing significantly, and it is expected to slow even more as more countries go into recession.”
The World Bank says that the simultaneous rises in interest rates around the world and other policy changes might not be enough to get inflation back to where it was before the COVID-19 outbreak and that more changes might be needed next year.
The global core inflation rate (core inflation rate minus energy) is anticipated to remain close to 5% in 2023 until supply disruptions and labour market pressures subside. This is approximately double the five-year average preceding the pandemic.
Central banks may need to raise interest rates by two percentage points more than the expected average increase of two percentage points through 2021. This would help bring down inflation.
The World Bank points out that a 0.5% drop in global GDP growth in 2023, or a 0.4% drop per person, would fit the technical definition of a global recession if a large increase in stress on the financial markets happened at the same time.
Malpass says that the government should stop focusing on cutting costs and start focusing on increasing output. This means getting more investment and working harder.
It could be dangerous to let inflation stay high for a long time while growth is low. The 1982 recession was used in comparison, where many developing countries lost a decade of progress and had to deal with more than forty debt problems because of the economic collapse.
The VP of the World Bank, Ayhan Kose, said that the recent tightening of monetary and fiscal policy would help keep inflation in check, but if both steps are taken at the same time, they could make the crisis and global GDP slowdown worse.
The results show that if central banks are more open about the policies they choose, they may be able to lower inflation without causing a global recession. In the meantime, governments would do well to make plans for the economy over the next few years that are believable and to keep giving targeted help to the most financially vulnerable households.
Credits /Co-Author: Sanchit Gupta
About Sanchit Gupta
Sanchit Gupta is a freelance journalist based in India. He founded and is the Editor-in-Chief of IndiaReflects.com, the country’s first real-world news outlet. Visit IndiaReflects.com and follow their social media platforms for more information on his work to end disinformation.
Sanchit Gupta
