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Global Recession Looms On Broadest Rate Hikes in 5 Decades: World Bank

World Bank says global economy is going into recession due to aggressive policies

The global economy could face a recession next year, triggered by an aggressive wave of policy tightening that could prove insufficient to contain inflation, the World Bank said in a new report.

Policymakers around the world are rolling back monetary and fiscal support with a degree of synchronization not seen in half a century, according to the study released Thursday in Washington. That is causing a greater-than-expected impact on undermining financial conditions and deepening the global slowdown, it said.

Investors expect central banks to raise global monetary policy rates to nearly 4 percent next year, double the 2021 average, just to keep core inflation at 5 percent. According to the report’s model, rates could rise as much as 6 percent as central banks try to keep inflation within their target limits.

The World Bank study estimates that global gross domestic product growth will slow to 0.5 percent by 2023, shrinking 0.4 percent in terms of per capita, which would meet the technical definition of a global recession. After a record expansion in 2021, this would short-circuit the recovery, well before economic activity returns to its pre-pandemic trend.

“Policymakers could shift their focus from reducing consumption to boosting production,” said David Malpass, chairman of the World Bank Group. “Policy should aim to generate additional investment and improve productivity and capital allocation, which are critical to growth and poverty reduction.”

The study by World Bank economists Justin-Damien Guenette, M. Ayhan Kose and Naotaka Sugawara sees a way for central banks to continue their efforts to contain inflation without triggering a global recession, writing an action plan for policy makers:

  • Central banks need to clearly communicate policy decisions to help anchor inflation expectations and reduce the amount of tightening needed
  • Central banks in advanced economies need to consider the cross-border spillover effects of tightening, while authorities in emerging markets need to strengthen macroprudential regulation and build foreign exchange reserves
  • Fiscal authorities should carefully coordinate the withdrawal of aid while ensuring consistency with monetary policy objectives
  • The number of countries tightening fiscal policy next year is expected to reach its highest level since the early 1990s, increasing the effects of monetary policy on growth. Policymakers need to develop credible medium-term fiscal plans and provide targeted assistance to vulnerable households
  • Other economic policymakers must join the fight against inflation by taking strong measures to increase global supply
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–With help from Zoe Schneeweiss.

(Except for the headline, this story has not been edited by NDTV staff and has been published from a syndicated feed.)



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