Global recession warning as World Bank cuts economic forecast

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According to the latest World Bank forecast, the world economy is “dangerously close to recession”.

He expects the global economy to grow by just 1.7% this year, down sharply from the 3% forecast in June.

The report blames a number of factors related to Russia’s invasion of Ukraine and the impact of the pandemic.

The consequences of higher interest rates have been identified as a major challenge for policymakers to address.

World Bank President David Malpass said the recession would be “broad-based” and that income growth in almost every part of the world would likely “be slower than in the decade before COVID-19.”

The 1.7% growth figure would be the lowest since 1991, excluding the recessions of 2009 and 2020, which were caused by global financial crisis and by the Covid pandemic .

The World Bank said the US, the eurozone and China – the three most influential parts of the world for economic growth – “are all experiencing a period of marked weakness”, a downturn that is exacerbating the problems faced by poorer countries.

After surging to 5.3% in the post-pandemic 2021, growth in the world’s richest economies is likely to slow sharply from 2.5% in 2022 to just 0.5% this year.

“Over the past two decades, a slowdown of this magnitude has heralded a global recession,” the bank warned, adding that it expected a “sharp, sustained slowdown.”

If a global recession were to occur, it would be the first time since the 1930s that there have been two global recessions in the same decade.

Struggle with rising prices

Higher inflation is one of the main reasons why the world economy is struggling. Global food and energy prices jumped last year as the war in Ukraine cut crop supplies and pushed the West to divest from Russian fossil fuels.

The World Bank said it expects global price growth to slow from 7.6% in 2022 to 5.2% this year as those pressures ease.

While “price jumps are possible”. the bank stated that it expects a decrease in energy prices in general. He pointed to increased global production and lower demand in Europe, where the energy crisis has forced businesses and households to cut gas consumption.

Grain prices are also forecast to fall 5% this year, although they will still be significantly higher than they were a few years ago, rising 13% in 2022.

Despite these developments, inflation is expected to remain well above the 2% level that is generally considered healthy.

Central banks in dozens of countries, including the US and Britain, are raising interest rates in response to the problem to cool their economies and ease upward pressure on prices.

chart of global interest rates

But they are treading a delicate path, trying to overcome the cost-of-living crisis without bringing their economy into recession .

The World Bank said higher borrowing costs had stifled business investment and warned that more companies were struggling with their debts. Emerging economies are also under severe pressure from US interest rates, which are expected to rise further. Many of them lend money in US dollars.

The bank said that even with the global economy “under pressure”, the right government policies can offer hope. He recommended measures to stimulate investment and create jobs, fight climate change, solve the debt problem of poorer countries and promote international trade.

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