warning of a global recession as the World Bank lowers its growth prediction
The most recent World Bank estimate states that the world economy is “perilously close to entering a recession.”
In contrast to its June prediction of 3%, it now projects the global economy will expand by just 1.7% this year.
The pandemic’s effects and Russia’s invasion of Ukraine are both blamed for a lot of things in the report.
The effects of increasing interest rates are singled out as the biggest hurdle that policymakers must clear.
According to World Bank President David Malpass, the slowdown will be “broad-based” and global wage growth would likely “be weaker than it was during the decade before COVID-19.”
Except for the recessions in 2009 and 2020 brought on by the global financial crisis and the Covid epidemic, the 1.7% growth rate would be the lowest since 1991.
More than originally estimated, the UK economy shrank.
US interest rates have reached a new 14-year high.
China’s industry output declines more than anticipated.
According to the Globe Bank, the US, the Eurozone, and China—the three regions of the world most responsible for economic growth—are “all facing a period of severe weakness,” a downturn that is making matters worse for less developed nations.
For the majority of countries, the economic outlook is becoming more gloomy.
The world’s richest nations are anticipated to have a significant decline in growth from 2.5% in 2022 to only 0.5% this year after rising by a whopping 5.3% in post-pandemic 2021.
The bank stated that it expected “a sharp, long-lasting slowdown” and cautioned that “slowdowns of this scale have foretold a global recession during the past two decades.”
It would be the first time since the 1930s that there were two worldwide recessions in the same decade if a global recession materialized.
combating price escalation
One of the key causes of the world economy’s difficulties is higher inflation. Due to decreased grain supplies and the West’s migration away from Russian fossil resources caused by the Ukraine conflict, global food and energy prices increased in 2017.
Why are things so pricey, asks the media caption. Your questions about inflation are answered in 90 seconds by Faisal Islam of the BBC.
As these pressures lessen, the World Bank predicted that the rate of price increases globally would fall from 7.6% in 2022 to 5.2% this year.
Even if “price surges are possible,” According to the bank, lower energy prices are generally anticipated. It indicated a rise in global output and a decline in demand in Europe, where a severe energy crisis has caused businesses and households to use less gas.
Crop prices are also anticipated to decline by 5% this year, but they will still be substantially higher than they were in recent years after increasing by 13% in 2022.
Despite these changes, inflation is anticipated to continue to rise above the average healthy rate of 2%.
In an effort to chill their economies and relieve pressures driving up prices, central banks in dozens of nations, including the US and the UK, have increased interest rates in reaction to the issue.
chart of world interest rates
However, they are treading carefully as they attempt to solve the cost-of-living crisis without sending their economies into a downturn.
The World Bank claimed that increased borrowing prices have hindered company expansion and issued a warning that more enterprises are having financial problems. Additionally, the US interest rates, which are anticipated to increase higher, are severely squeezing emerging market economies. Numerous them take out loans in US currency.
According to the Bank, even though the world economy is “under pressure,” the correct government policies can still provide hope. It offered recommendations on how to increase investments, generate jobs, combat climate change, pay off the debts of developing nations, and ease international trade.
