The World Bank has expressed fears that the world may be edging towards a global recession following a hike in interest rates by central banks to combat inflation across the world simultaneously. It added that the world’s three largest economies – the United States, China, and the euro area, have been slowing sharply, and even a “moderate hit to the global economy over the next year could tip it into recession”.
Following a post-recession recovery since 1970, the global economy was now in its steepest slowdown, the bank said, adding that consumer confidence had already dropped more sharply than in the run-up to previous global recessions.
“Global growth is slowing sharply, with further slowing likely as more countries fall into recession,” World Bank President David Malpass said, adding that these trends would persist, with devastating consequences for emerging market and developing economies.
Interest rate hikes and related policy actions might not be sufficient to bring inflation back down to levels seen before the COVID-19, the bank said. Unless supply disruptions and labour-market pressures subsided, the global core inflation rate, excluding energy, could stay at about 5 per cent in 2023, nearly double the five-year average before the pandemic.
Central banks may need to raise interest rates by an additional two percentage points, on top of the two-percentage point increase already seen over the 2021 average, it said.
However, that is likely to slow global gross domestic product growth to 0.5 per cent in 2023, or a 0.4 per cent contraction in per–capita terms, which would meet the technical definition of a global recession, it added.
Malpass said policymakers need to now focus on boosting production, including efforts to generate additional investment and productivity gains.
World Bank vice president Ayhan Kose said a recent tightening of monetary and fiscal policies would help cut inflation, but the highly synchronous nature of the measures could compound the situation and steepen the global growth slowdown.
(With inputs from agencies)