Economic Buzz: World May Be Edging Toward A Global Recession In 2023, Notes World Bank Study

16 Sep 2022 , 01:40 PM

As central banks across the world simultaneously hike interest rates in response to inflation, the world may be edging toward a global recession in 2023 and a string of financial crises in emerging market and developing economies that would do them lasting harm, according to a comprehensive new study by the World Bank. Central banks around the world have been raising interest rates this year with a degree of synchronicity not seen over the past five decades?a trend that is likely to continue well into next year, according to the report. Yet the currently expected trajectory of interest-rate increases and other policy actions may not be sufficient to bring global inflation back down to levels seen before the pandemic. Investors expect central banks to raise global monetary-policy rates to almost 4 percent through 2023?an increase of more than 2 percentage points over their 2021 average. Unless supply disruptions and labor-market pressures subside, those interest-rate increases could leave the global core inflation rate (excluding energy) at about 5 percent in 2023?nearly double the five-year average before the pandemic, the study finds. To cut global inflation to a rate consistent with their targets, central banks may need to raise interest rates by an additional 2 percentage points, according to the reports model. If this were accompanied by financial-market stress, global GDP growth would slow to 0.5 percent in 2023?a 0.4 percent contraction in per-capita terms that would meet the technical definition of a global recession, the study noted. The study highlights the unusually fraught circumstances under which central banks are fighting inflation today. Several historical indicators of global recessions are already flashing warnings. The global economy is now in its steepest slowdown following a post-recession recovery since 1970. Global consumer confidence has already suffered a much sharper decline than in the run-up to previous global recessions. The worlds three largest economies?the United States, China, and the euro area?have been slowing sharply. Under the circumstances, even a moderate hit to the global economy over the next year could tip it into recession. Powered by Commodity Insights