The threat of a global recession is growing as central banks focus on bringing down soaring inflation rates by aggressively hiking interest rates, according to the World Bank. Global inflation has been rising at the fastest pace in decades, due to supply constraints, the Russian invasion of Ukraine and elevated energy prices.
In a new report, World Bank economists warned that the actions by central banks may not be enough to bring high prices under control, leading to more interest rate increases that would harm economic growth.
World Bank officials said the worldwide slowdown and interest rate hikes “could give rise to significant financial stress and trigger a global recession in 2023.” Bank officials expect global growth to slow to 0.5% next year—a 0.4% contraction in per capita growth.
World Bank President David Malpass urged policymakers to “shift their focus from reducing consumption to boosting production.”
“The report also cited the risks of allowing inflation to remain high for an extended period, using the recessions of the 1970s and early 1980s, which ultimately led to stagflation in developing economies and as many as 40 debt crises. A repeat of that scenario today could exacerbate the flight to safety and strengthen the U.S. dollar even more, which will put even more pressure on equities,” said Caleb Silver, Editor-in-Chief of Investopedia.