The world economy is perilously close to entering a recession, according to the World Bank’s most recent projection.
It predicts that the global economy will grow by only 1.7% this year. A significant reduction from the 3.0% anticipated in June.
The paper attributes a variety of causes to Russia’s invasion of Ukraine and the pandemic’s effects.
The effects of rising interest rates are seen as the greatest obstacle for policymakers to surmount.
David Malpass, president of the World Bank, stated that the recession would be “broad-based”. And that wage growth in practically every region of the globe would likely be “slower than in the decade preceding Covid-19.
Except for the recessions of 2009 and 2020, which were caused by the global financial crisis and the Covid epidemic, the 1.7% growth rate would be the lowest since 1991.
The World Bank stated that the United States, the Eurozone, and China. The three most prominent regions in terms of economic growth – were “all experiencing a period of acute weakness,” which exacerbated the issues faced by poorer nations.
After increasing by 5.3% in the post-pandemic year of 2021, GDP in the world’s strongest economies is expected to drop precipitously to 0.5% this year, from 2.5% in 2022.
“Over the previous two decades, slowdowns of this magnitude have foretold a global recession”. The bank cautioned, adding that it expected “a strong, prolonged downturn.”
If a worldwide recession occurs, it will be the first time since the 1930s that two global recessions have occurred in the same decade.
Managing price increases
One of the primary reasons why the world economy is failing is the rise in inflation. Last year, global food and energy costs increased as a result of the war in Ukraine. Which restricted crop supply and prompted the West to shift away from Russian fossil fuels.
As these pressures relax, the World Bank expects the rate of global price increases to decline from 7.6% in 2022 to 5.2% this year.
While certain “price surges are possible”. The bank stated that it anticipated a general decline in energy prices. It indicated a rise in global output and a decline in demand in Europe. Where an energy crisis has prompted businesses and households to limit their gas consumption.
In addition, it is anticipated that crop prices would decline by 5% this year. But they will still be much higher than they were a few years ago, having increased by 13% in 2022.
Despite these changes, inflation is anticipated to stay substantially above the average healthy rate of 2%.
Global economy
In response to the situation, central banks in dozens of nations, notably the United States and the United Kingdom, have raised interest rates to cool their economies and alleviate the pressures driving up prices.
However, they are treading a fine line as they attempt to solve the cost-of-living crisis without triggering a recession.
The World Bank stated that higher borrowing prices have impeded corporate investments. And warned that an increasing number of businesses are suffering from their debts. US interest rates, which are anticipated to climb further, exert a significant amount of pressure on developing nations. Numerous of them borrow in US dollars.
Even though the global economy is “under pressure,” the Bank stated that the correct government actions could offer hope. It proposed ways to increase investments and job creation, combat climate change, handle the debts of developing nations, and facilitate international trade.
