World Bank | Rising interest rates increase the risk of a global recession in 2023

(Washington) Central banks simultaneously raising interest rates to fight inflation are raising the risk of a global recession in 2023, the World Bank estimated on Thursday, while bolstering the need to contain those price increases.

Posted at 1:24 p.m

Global central bank interest rates have risen on average by 2% from 2021, according to a study conducted by the institution, but at least one equivalent hike may still be needed to bring inflation back on target. .

However, such an increase could lead to a further slowdown in global economic activity, the World Bank points out, with growth of just 0.5% in 2023, which would correspond to a fall of 0.4% in GDP per inhabitant.

“Global growth is slowing sharply and will continue to slow as more countries enter recession. My concern is that this trend will continue with devastating long-term consequences for emerging and developing economies,” World Bank President David Malpass said in a statement.

When it published its global economic outlook in early June, the World Bank still forecast global growth of less than 3% for 2023 and 2024 due to the effects of the war in Ukraine.

The changing geopolitical environment and persistent inflation, which is no longer driven solely by energy and food prices, are already having a profound impact on the economy.

“We have revised downward growth forecasts for all countries except commodity-exporting countries worldwide. And we’ve lowered our forecasts for the global economy by a third,” the organization’s chief economist, Indermit Gill, said during a news conference.

However, the international financial institution is urging central banks to continue their efforts to curb inflation to avoid socio-economic risks if prices continue to rise.

“Six months ago, our concerns were about a slowing recovery and a temporary rise in prices. From now on, we fear general stagflation, which would bring back very bad memories,” Indermit Gill justified this position.

In order to limit the impact on growth, the World Bank calls for a coordinated approach to monetary and budgetary policy, but also to strengthen supply chains and avoid fragmentation of the global economy.

Finally, Mr. Malpass called on governments to adopt supply-side policies by increasing investment and improving productivity.

“It doesn’t necessarily come with additional incentives or expenses,” Gil emphasized. “Simple rule changes, like better integration of women into the labor market, can increase productivity.”

However, some states do not necessarily have the necessary financial leeway: According to the IMF, almost a quarter of emerging markets and more than 60% of low-income countries are already having difficulties refinancing their public debt.

Since the Ukraine conflict erupted, 16 countries have requested financial assistance, also highlighting the impact of the economic slowdown on public finances already weakened by the health crisis.

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