World Bank warns higher interest risk could cause global recession

The World Bank has warned that as central banks concurrently boost interest rates to combat persistent inflation, the world may be on the verge of a worldwide recession. The three largest economies—the US, China, and the eurozone—have been slowing down significantly, and the bank warned in a report that even a "modest damage to the global economy over the next year might tip it into recession." According to the report, consumer confidence had already fallen more drastically than in the years leading up to past global recessions, and the world economy was already experiencing its worst decline following a post-recession rebound since 1970. “Global growth is slowing sharply, with further slowing likely as more countries fall into recession,” the World Bank president, David Malpass, said, adding his worry that these trends would persist, with devastating consequences for emerging market and developing economies. Globally synchronized interest rate increases and accompanying policy changes were expected to go far into next year, the bank warned, but they might not be enough to bring inflation back down to levels observed before the Covid-19 outbreak. The global core inflation rate, excluding energy, might persist at over 5% in 2023, about double the five-year average prior to the pandemic if supply disruptions and labor market pressures don't abate. It claimed that in addition to the two percentage point increase in interest rates already observed over the 2021 average, central banks may need to hike rates by an additional two percentage points to reduce inflation. However, it noted, a rise of that magnitude coupled with financial sector stress would slow global GDP growth to 0.5% in 2023, or a 0.4% decrease in terms of per capita, which would fulfill the formal criteria for a worldwide recession. Malpass said policymakers should shift their focus from reducing consumption to boosting production, including efforts to generate additional investment and productivity gains.