After IMF, World Bank Warns Of Rising Risk Of Global Recession In 2023 Amid Sharp Economic Slowdown

Over two months after the IMF (International Monetary Fund) Chief said that chances of global recession in 2023 cannot be ruled out, the World Bank has issued a similar warning.

The world may be edging towards a global recession as central banks across the world simultaneously hike interest rates to combat persistent inflation, the World Bank said on Thursday in a press release.

In a new study, the bank said that the world's three largest economies - the United States, China, and the Euro area (Member States of the European Union that have adopted the euro as their currency) - have been slowing sharply, and even a "moderate hit to the global economy over the next year could tip it into recession."

It also said that the global economy was now in its steepest slow down following a post-recession recovery since 1970, and 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 his worry that these trends would persist, with devastating consequences for emerging market and developing economies.

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Synchronised interest rate hikes under way globally and related policy actions were likely to continue well into next year, but might not be sufficient to bring inflation back down to levels seen before the COVID-19 pandemic, the bank said.

Earlier in July, a survey of economists by Bloomberg had mentioned that India has zero probability of slipping into recession next year.

Also Read: Bank Of England Warns About UK Falling Into Recession This Year

Can Recession Be Avoided?

The study also mentioned that unless supply disruptions and labour-market pressures subside, central banks' interest-rate increases could leave the global core inflation rate (excluding energy) at about 5% in 2023¡ªnearly double the five-year average before the pandemic. 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 report¡¯s model. If this were accompanied by financial-market stress, global GDP growth would slow to 0.5% in 2023¡ªa 0.4% contraction in per¨Ccapita terms that would meet the technical definition of a global recession.

The World Bank President Malpass also said policymakers should shift their focus from reducing consumption to boosting production, including efforts to generate additional investment and productivity gains.

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Previous recessions showed the risk of allowing inflation to stay elevated for long while growth is weak, the bank said, noting that the 1982 recession triggered more than 40 debt crises and ushered in a decade of lost growth in many developing economies.

The study by World bank also suggested that central banks could combat inflation without touching off a global recession by communicating their policy decisions clearly, while policymakers should put in place credible medium-term fiscal plans and continue to provide targeted relief to vulnerable households.

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