A new World Bank study has claimed that the world may be on the brink of a global recession and financial crisis by 2023, as central banks on every continent have raised interest rates in response to inflation. The recessionary period is still a blur, but it would cause lasting damage to developed economies and emerging markets.
Risk of Global Recession
According to the report, due to the rapid increase in interest rates by central banks around the world, the world economy may fall into recession in 2023.
Fear of recession has instilled more fear among employed people as memories of Kovid-era layoffs are still not erased from their minds.
Reckless spending in the name of the economic package, supply chain damage from China’s Covid sanctions, and Russia’s attacks on Ukraine have pushed gasoline, diesel, and foodgrain prices to their highest in decades.
Therefore, from the US central bank’s Federal Reserve to the Bank of England, the Japanese central bank has made preparations to raise interest rates to control inflation. China’s central bank has not prepared to raise interest rates but has stopped cutting them.
Rising interest rates
Rising interest rates make loans more expensive for both businesses and the common consumer. Then the companies stop their expansion and the common consumer begins to reduce their expenses. Because of this, demand begins to decline and economic activity slows down.
This increases the risk of the economy slipping into recession. The largest and most immediate effect of the slowdown in economic activity is on employment.
The study argues that unless supply disruptions and labour market pressures abate, such interest rate increases could leave the global core inflation rate (excluding energy) at around 5% at 2023, nearly double the five-year average before the pandemic. To bring global inflation down to a rate consistent with their targets, central banks will likely need to raise interest rates by an additional 2 percentage points, according to the report’s model. 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.
“Global growth is slowing sharply, and a further slowdown is likely as more countries enter a recession. I am deeply concerned that these trends will persist, with lasting consequences that are devastating for people in emerging markets and developing economies,” said David Malpass, President of the World Bank Group.
“To achieve low inflation rates, monetary stability, and faster growth, policymakers could shift the focus from reducing consumption to increasing production. Policies should aim to generate additional investment and improve productivity and capital allocation, which are critical for growth and poverty reduction.”
World economy steepest setback
The study highlights the extraordinarily difficult circumstances under which central banks are currently fighting inflation. Several historical indicators of global recessions are already intermittent warnings.
The world economy is now in its steepest setback after a post-recession recovery since 1970. Consumer confidence around the world has fallen more sharply than in the run-up to previous global recessions. The world’s three largest economies—the United States, China, and the eurozone—have all slowed sharply. Under these circumstances, even if a moderate shock hits the global economy over the next year, it could slip into a recession.
“Recent tightening of monetary and fiscal policies is likely to help reduce inflation,” said Ayhan Kose, Acting Vice President for Equitable Growth, Finance and Institutions at the World Bank. “However, since [policies] are highly synchronized across countries, they could exacerbate both the tightening of financial conditions and the deepening of the global growth slowdown. Policymakers in emerging markets and developing economies must be prepared to manage the potential spillover effects of simultaneous global policy tightening.”
Worry about recession
- World Bank predicts economic recession in 2023
- Central banks are raising interest rates to reduce inflation
- But this may slow down economic activity
- The risk of recession due to slowing economic activity
- Recession increases the risk of job losses around the world
- According to a report, 50 per cent of companies will lay off
- Jobs will decrease in India, impact on the export sector
- Recession may have more impact on western countries
- The pace of economic recovery in India will be slow
India’s retail inflation rose 7 percent in August due to higher food prices, compared with a 6.71 percent rise in July, according to government data.
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