World Bank cites heightened risk of global recession

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The World Bank evokes an increased risk of global recession

A man walks past the headquarters of the World Bank in Washington, DC.

Central banks' simultaneous hikes in interest rates could fuel a global recession next next year, the World Bank estimated on Thursday.

The three major economic blocs on the planet, the United States, China and the Eurozone, have already slowed markedly and all it takes is a moderate hit to the global economy over the course of the economy. coming year to tip it into recession, says the Washington-based institution in a new study.

She adds that the global economy is currently going through the sharpest downturn following a recovery since the 1970s and that consumer confidence has already fallen more sharply than in previous recessions.

“Global growth is slowing sharply and further slowdown is likely as more countries fall into recession.

—David Malpass, President of the World Bank

Mr. Malpass also says he fears devastating consequences of this development for emerging and developing countries.

The current simultaneous rise in interest rates should continue for much of 2023, but it may not be enough to bring inflation back to its pre-Central level. COVID-19 pandemic, also estimates the World Bank.

If supply chain disruptions and labor market tensions do not ease, the global core inflation rate (excluding energy) could remain close to 5%, nearly double its average level in the five years before the pandemic.

To bring inflation down, central banks may need to raise policy rates by two additional percentage points, i.e. as much as the increases already decided compared to their average level of 2021, specifies the study.

But a rise of this magnitude, combined with strains in financial markets, would drop global gross domestic product (GDP) growth to 0.5% in 2023, equivalent to a 0.4% contraction in GDP per capita. , a decline corresponding to the technical definition of a global recession, she underlines.

David Malpass, president of the World Bank

For David Malpass, political and monetary leaders should prioritize increasing production rather than reducing consumption, among other things by taking measures that promote investment and economic gains. productivity.

Recent recessions have underscored the risk of allowing inflation to remain elevated while growth weakens, the report continues. x27;World Bank study noting that the 1982 recession was followed by more than 40 debt crises and resulted in a decade of lost growth for many developing countries.

For Ayhan Kose, Vice-President of the World Bank, the recent tightening of monetary and budgetary policies can certainly contribute to reducing inflation, but the simultaneity of these measures risks aggravating the situation and accentuate the slowdown in growth this global.

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