Aggressive monetary tightening could trigger global recession, warns World Bank

The firm stance of central banks in fighting inflation could trigger a scenario of global recession in 2023, warns the World Bank in a report. The study warns of the growing risk of financial crises in emerging and developing economies.

According to research estimates, to control the rise in prices, central banks around the world will have to raise interest rates by an average of 2 percentage points. If accompanied by stress in financial markets, this pace would slow the planet’s gross domestic product (GDP) growth to 0.5% in 2023, which equates to a 0.4% contraction in per capita terms, according to the institution. . This result would meet the technical criteria for defining a recession.

The report highlights a number of evidence pointing to a recession on the horizon. According to the analysis, the global economy is registering the sharpest slowdown since the 1970s, while consumer confidence is at a low. The three main economic powers on the planet – the United States, China and the euro zone – are slowing growth, says the text.

“My deep concern is that these trends persist, with devastating lasting consequences for people in emerging markets and developing economies,” says World Bank Group President David Malpass.

Despite this, the study still observes a way in which it will be possible to control inflation without causing a recession. To that end, the World Bank suggests that central banks clearly communicate their intentions and that fiscal authorities gauge the withdrawal of support measures.