The World Bank warns that simultaneous rate increases are increasing the likelihood of a global recession in 2023

The World Bank Group president, David Malpass has warned the world about the imminent threat of global recession citing a new comprehensive study by the international financial institution. According to the study, central banks across the world have been steadily raising the interest rates with such a synchronicity that the world bank notes were “not seen over the past five decades”.

“Global growth is slowing sharply, with further slowing likely as more countries fall into recession”, warned Malpass.

From a post-pandemic viewpoint, the study also suggests that the expected trajectory of interest-rate hikes and other policy actions may not be adequate to roll the global inflation back down to a level that persisted pre-pandemic. The study further highlights that the central banks may need to raise interest rates by an additional 2 percent points in order to cut global inflation to a rate consistent with their targets. Moreover, unless labor-market pressures and supply disruptions subside, the interest-rate hikes could leave the global core inflation rate (excluding energy) at about 5 percent in 2023, nearly doubling the 5-year average pre-COVID.

From a post-pandemic viewpoint, the study also suggests that the expected trajectory of interest-rate hikes and other policy actions may not be adequate to roll the global inflation back down to a level that persisted pre-pandemic. The study further highlights that the central banks may need to raise interest rates by an additional 2 percent points in order to cut global inflation to a rate consistent with their targets. Moreover, unless labor-market pressures and supply disruptions subside, the interest-rate hikes could leave the global core inflation rate (excluding energy) at about 5 percent in 2023, nearly doubling the 5-year average pre-COVID.

Suggestions pitched by the world bank to counter the global recession

Following a post-recession recovery since 1970, the global economy is at its steepest slowdown. The study suggested that central banks should be persistent in their efforts to control inflation, a task that will require concerted action by policymakers. In order to anchor inflation expectations and reduce the degree of tightening currently needed, the central banks must communicate policy decisions precisely. In advanced economies, the cross-border spillover effects of monetary tightening should be considered and in developing economies, the macro-prudential regulations must be strengthened and foreign-exchange reserves should be built.

Additionally, the fiscal authorities are required to gradually calibrate the withdrawal of financial support measures while keeping the monetary-policy objectives consistent. Credible medium-term fiscal plans must also be prioritized by the policymakers in order to provide targeted relief to vulnerable households. Easing labor-market constraints, boosting the global supply of commodities, and strengthening global trade networks are also among the chief steps that need to be considered to counter the emerging threat of global recession.