The world is in a fragile situation due to the impact of the Covid-19 pandemic, the Ukraine-Russia conflict and political changes due to the cold war between the world’s superpowers. Inflation is on the rise, central banks are coming up with a series of tightening policies to deal with the situation, but the reins are not being pulled against the odds. There is a risk of a global recession. At just such a juncture, the World Bank recently warned that the global economy is just a finger away from a second recession in a decade. This is unprecedented for more than 80 years.
High inflation, aggressive central bank policy, deteriorating financial conditions and Russia’s aggression in Ukraine are weighing on growth. As a result, the incidence of geopolitical tensions from more negative shocks, higher inflation, and even tighter monetary policy is increasing. According to the World Bank, these are enough to exacerbate the recessionary situation. The global economy contracted by 3.2 percent during the 2020 pandemic recession, after a slight recovery in 2021. But historically, the world last experienced two such recessions within 10 years of each other in the 1930s.
The World Bank added in its report that the world’s three main growth drivers—the United States, the euro area and China—are currently undergoing clean weakness. The shock will also affect poorer countries, which are already dealing with turmoil around an uncertain economic climate, low business investment and rising interest rates. Moreover, the rising cost of credit can make taking out large loans more challenging.