A comprehensive new World Bank study has found that a drop in global inflation to target levels may require the world’s central banks to raise interest rates by an additional two percentage points and continue efforts to contain inflation without causing an economic downturn. global.
And the study, which was published yesterday, Thursday, announced that the world may be heading for an economic recession in 2023, and a series of financial crises in emerging market and developing economies will cause them permanent damage, with the central banks of everyone making simultaneous increases in interest rates.
The study notes that central banks around the world have raised interest rates in 2022 with a degree of synchronization not seen over the past five decades, part of a trend that is likely to continue into 2023.
The study considered that the expected path, currently, to increase interest rates and other policy measures may not be enough to reduce global inflation rates to the levels that prevailed before the outbreak of the Corona pandemic.
The study concluded that unless supply chain disruptions and labor market pressures abate, interest rate increases may lead to an increase in the rate of core inflation worldwide (excluding energy). in 2023 to around 5%, which is almost double the average of the previous five years. COVID-19.
And if these measures are accompanied by increased pressures on financial markets, the global GDP growth rate will slow to 0.5 percent in 2023, a 0.4 percent contraction in terms of average per capita growth that meets the technical definition of a global recession, according to the study
Commenting on the study, World Bank Group President David Malpass said: “To achieve low inflation, stable currencies and accelerate growth, policymakers should shift their focus from reducing consumption to boosting production.” . “Policies must seek to generate additional investment, improve productivity and allocate capital, which are essential to achieve growth and reduce poverty,” he added.
The study draws on the lessons learned from previous episodes of global recession to analyze the evolution of economic activity in recent times and presents a package of possible scenarios for the years 2022-2024.