WASHINGTON, Sept 15 (Reuters) – Simultaneous central bank interest rate hikes could fuel a global recession next year, the World Bank said on Thursday.
The three main economic blocks of the planet, the United States, China and the euro zone, have already slowed down markedly and it would only take a “moderate blow to the world economy over the coming year to tip it into recession,” says the Washington-based institution in a new study.
She adds that the global economy is currently going through the sharpest downturn following a recovery since the 1970s and that consumer confidence has already fallen more sharply than in previous recessions.
“Global growth is slowing sharply and a further slowdown is likely as more and more countries fall into recession,” World Bank President David Malpass said, adding fears that this development could have devastating consequences for emerging and developing countries.
The current movement of simultaneous rise in interest rates should continue for a good part of 2023 but it may not be enough to bring inflation back to its level before the COVID-19 pandemic, also estimates the World Bank.
If supply chain disruptions and labor market tensions do not ease, the global core inflation rate (excluding energy) could remain close to 5%, nearly double its current rate. average level over the five years preceding the pandemic.
RISE IN RATES RISK TO SUFFER GROWTH
To bring inflation down, central banks may have to raise key rates by an additional two percentage points, or as much as the increases already decided on compared to their average level in 2021, the study specifies.
But a rise of this magnitude, combined with strains in financial markets, would drop global gross domestic product (GDP) growth to 0.5% in 2023, equivalent to a 0.4% contraction in GDP per capita. , a decline that meets the technical definition of a global recession, she said.
For David Malpass, political and monetary leaders should give priority to increasing production rather than reducing consumption, among other things by taking measures to encourage investment and productivity gains.
Recent recessions have underscored the risk of allowing inflation to remain high while growth weakens, the World Bank study continues, noting that the 1982 recession was followed by more than 40 crises of indebtedness and led to a decade of lost growth for many developing countries.
For Ayhan Kose, Vice-President of the WB, the recent tightening of monetary and budgetary policies can certainly contribute to reducing inflation, but the simultaneity of these measures risks aggravating the situation and accentuating the slowdown in global growth. . (Report Andrea Shalal, French version Marc Angrand)