The world may be edging toward a global recession in 2023 and a string of financial crises in emerging markets and developing economies, media reported based on a comprehensive study by the World Bank.
The report also added that the recession would do them lasting harm as central banks across the world simultaneously are hiking interest rates unusually fraught circumstances in response to inflation.
Central banks worldwide 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 the study report.
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% till 2023—an increase of more than 2 percentage points over their 2021 average, the World Bank said in a release citing the report.
Unless supply disruptions and labor-market pressures subside, the study found that 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.
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—a 0.4% contraction in per-capita terms that would meet the technical definition of a worldwide recession.
The world’s three largest economies—the United States, China, and the euro area—have been slowing sharply. Under the circumstances, even a moderate hit to the global economy over the next year could tip it into recession, the report added.