The World Bank has warned that the world is approaching a global recession as central banks are simultaneously raising interest rates to combat persistent inflation.
The bank said in a new study that the world’s three largest economies – the US, China and the eurozone – have slowed sharply and even “a moderate shock to the global economy over the next year could push it into recession”.
He said the global economy is going through its sharpest slowdown since 1970, after the recovery that followed the recession, and consumer confidence has fallen more sharply than in the run-up to previous global recessions.
World Bank President David Malpass said global growth is slowing sharply and likely to slow further as more countries enter recession, adding concern that these trends will continue with severe consequences for economies from emerging and developing markets.
Simultaneous increases in global interest rates and related monetary policy measures are likely to continue into the next year; However, the bank warned that it may not be enough to return inflation to pre-Covid-19 pandemic levels.
Unless supply disruptions and labor market pressures abate, global core inflation (excluding energy) could remain around 5% in 2023, nearly double the five-year average before the crisis.
He said that to bring down inflation, central banks may need to raise interest rates by an additional two percentage points, on top of the increase of two percentage points already seen above the 2021 average.
He warned that an increase in this volume, along with pressure in financial markets, would reduce 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.
Malpass said authorities should shift their focus from reducing consumption to boosting production, including efforts to generate additional investment and productivity gains.
The World Bank added that previous recessions showed the danger of allowing inflation to remain high for too long at a time when growth was weak, noting that the economic recession in 1982 caused more than 40 debt crises and marked the beginning of a decade of lost growth in many countries. developing economies.
World Bank Vice President Ayhan Kose said the recent tightening of monetary and fiscal policies should help reduce inflation, although the highly simultaneous nature of the measures could exacerbate the situation and exacerbate the slowdown in global growth.
The study suggests that central banks can fight inflation without causing a global recession by clearly announcing their monetary decisions, while authorities should implement credible medium-term fiscal plans and continue to provide targeted relief to vulnerable households.
There will be more global slowdown in the third quarter: IMF
International Monetary Fund spokesman, Jerry Rice, said downside risks still dominate the global economic outlook, with some countries expected to slip into recession in 2023, but it is too early to tell if there will be a generalized situation.
Rice told reporters that the high-frequency data suggests a further loss of momentum in the third quarter. However, it did not go into further revisions to the IMF’s forecast.
In July, the International Monetary Fund revised global growth to 3.2% in 2022 and 2.9% in 2023. Next month it will publish new forecasts.
“It is clear that what we have described as a global economic slowdown has intensified in recent weeks and months,” Rice said at a virtual news conference.
He added that the continued closure due to the Covid-19 pandemic and real estate problems are weighing on economic activity in China, while the strengthening of the dollar has repercussions for many countries. (Reuters)