- World Bank report has revealed that with the central banks across the world simultaneously hiking interest rates in response to inflation, the world may be edging toward a global recession in 2023
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A new study by the World Bank has revealed that with the central banks across the world simultaneously hiking 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 markets and developing economies that would do them lasting harm. The report said that the 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 news agency ANI report.
The report noted, “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% through 2023–an increase of more than 2 percentage points over their 2021 average.”
The report highlighted that unless supply disruptions and labour-market pressures subside, those interest-rate increases could leave the global core inflation rate (excluding energy) at about 5% in 2023–nearly double the five-year average before the pandemic, adding that central banks may need to raise interest rates by an additional 2 percentage points to control inflation.
If this were accompanied by financial-market stress, global GDP growth would slow to 0.5% in 2023–a 0.4% contraction in per-capita terms that would meet the technical definition of a global recession.
David Malpass President of World Bank Group said, “global growth is slowing sharply, with further slowing likely as more countries fall into recession. My deep concern is that these trends will persist, with long-lasting consequences that are devastating for people in emerging markets and developing economies.” Malpass further said, “to achieve low inflation rates, currency stability and faster growth, policymakers could shift their focus from reducing consumption to boosting production. Policies should seek to generate additional investment and improve productivity and capital allocation, which are critical for growth and poverty reduction.”
The World Bank further clarified that several historical indicators of global recession are already flashing warnings and the global economy is now in its steepest slowdown following a post-recession recovery since 1970.
(With inputs from ANI)