The World Bank predicts increased risks of a global recession in 2023

Cars pass in front of the World Bank building, which houses the International Center for Settlement of Investment Disputes, in Washington, DC on May 20, 2022. Photo taken with long exposure. Photo taken on May 20, 2022. REUTERS/Rafael Satter

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The World Bank said, on Thursday, that the world may be heading towards a global recession, as central banks around the world raise interest rates simultaneously to combat persistent inflation.

The bank said in a new study that the world’s three largest economies – the United States, China and the eurozone – are slowing sharply, and even “a moderate hit to the global economy over the next year could push it into recession.” .

She said the global economy is now going through its sharpest slowdown in the wake of the recovery that followed the recession since 1970, and that consumer confidence has already fallen more sharply than in the run-up to previous global recessions.

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“Global growth is slowing sharply, with the potential for a further slowdown as more countries enter recession,” World Bank President David Malpass said, adding his concern that these trends would continue, with serious consequences for emerging markets and developing economies. .

The bank said simultaneous increases in current interest rates globally and related policy measures are likely to continue well into the coming year, but may not be enough to return inflation to levels it was before the COVID-19 pandemic.

Unless supply disruptions and labor market pressures abate, global core inflation, excluding energy, could remain at around 5% in 2023, nearly double the five-year average before the pandemic.

To push inflation lower, central banks may need to raise interest rates by an additional 2 percentage points, on top of the increase of 2 percentage points already seen above the 2021 average.

But an increase in that volume, along with financial market pressures, would slow global GDP growth to 0.5% in 2023, or a contraction of 0.4% in per capita terms, which would meet the technical definition of a global recession. added.

Malpass said policymakers should shift their focus from reducing consumption to boosting production, including efforts to generate additional investment and productivity gains.

The bank said that previous recessions showed the risks of allowing inflation to stay high for a long time while growth is weak, noting that the economic recession in 1982 caused more than 40 debt crises and heralded a decade of lost growth in many developing economies.

World Bank Vice President Ayhan Kose said that the recent tightening of monetary and fiscal policies should help reduce inflation, but the highly simultaneous nature of the measures could worsen the situation and exacerbate the slowdown in global growth.

The study suggested that central banks can combat inflation without touching a global recession by clearly communicating their policy decisions, while policy makers should develop credible medium-term fiscal plans and continue to provide targeted relief to vulnerable households.

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(Andrea Shalal reports). Editing by Richard Boleyn

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