According to the World Bank’s latest forecast, the global economy is “perilously close” to entering recession.
The world economy is expected to grow by 1.7% in 2013, a sharp decline from the 3% forecasted in June.
Report blames many factors, including Russia’s invasion in Ukraine and the effects of the pandemic.
Policy makers must address the main challenge of higher interest rates.
David Malpass, president of the World Bank, stated that the downturn will be “broad-based” in which growth in earnings in nearly all parts of the globe is likely to be slower than in the decade prior to Covid-19.
This would be the lowest growth rate since 1991, with the exception of the recessions in 2009 and 2020 that were caused by the global financial crisis.
According to the World Bank, the US, China and the Eurozone – three of the most important parts of the world in terms of economic growth – were going through a period “of pronounced weakness”, which was worsening the problems of poorer countries.
After a 5.3% increase in post-pandemic 2021 growth, the world’s wealthiest economies will likely slow from 2.5% to 0.5% this year to avoid a sharp decline of 5.3% in 2022.
“Over the last two decades, slowdowns on this scale have foreshadowed an international recession,” the bank warned. It also predicted “a sharp, lasting slowdown.”
A global recession would mark the first time in the past ten years that there have been two simultaneous global recessions.
Tackling rising prices
The main reason the global economy is in trouble is because of higher inflation. As a result of the conflict in Ukraine, global food and energy prices rose last year. This was due to increased crop supply and the West’s decision to abandon Russian fossil fuels.
According to the World Bank, it expects that global price increases will slow from 7.6% to 5.2% in 2022 to ease as these pressures ease.
Although “prices spikes” are possible, The bank stated that it expects energy prices to drop in general. The bank pointed out an increase in global production, and lower demand in Europe. This is where the energy crisis has forced households and businesses to cut their gas consumption.
Crop prices are expected to drop by 5% this season, although they will be much higher than they were just a few years ago. They have risen 13% in 2022.
Despite these developments, inflation is expected not to fall below the 2% rate that is considered healthy.
In response to this problem, central banks across many countries, including the US, raised interest rates to try to cool down their economies and reduce prices.
They are treading carefully as they attempt to tackle the cost-of living crisis without putting their economies in recession.
According to the World Bank, higher borrowing costs have hurt business investment and more companies are struggling with their debts. US interest rates are expected to increase further, putting pressure on developing economies. Many of these countries borrow money in US Dollars.
According to the Bank, even though the world economy is “under pressure”, the right government policies can offer hope. The Bank recommended that measures be taken to increase investments, create jobs, combat climate change, reduce the burden on poorer countries, and facilitate international trade.