World could face recession next year: World Bank report

The world could face a recession next year if central banks around the world simultaneously tighten monetary policy, the World Bank said in a new report, which called for boosting production and easing supply shortages to ease inflation.

Several indicators of a global recession are already “flashing signals,” the report said. She added that the global economy is now in the midst of its worst slowdown since 1970 after recovering from a recession.

The bank said global central banks could raise interest rates by 4%, double the level in 2021, just to keep core inflation, which excludes volatile items such as food and fuel, at 5%.

Countries from the U.S. to Europe to India are aggressively raising lending rates to curb the supply of cheap money and help reduce inflation. But this monetary tightening comes at a cost. It stifles investment, lowers jobs and dampens growth, a trade-off faced by most countries, including India.

“Global growth is slowing sharply and is likely to slow further as more countries fall into recession. I am deeply concerned that these trends will continue, with devastating long-term consequences for people in emerging and developing countries ,” World Bank President David Malpass said in a statement following the release of the report on Thursday.

The world is facing record inflation due to factors including reduced food supplies due to the war in Ukraine, the knock-on effects of the pandemic on supply chains, weak demand in China due to ongoing coronavirus lockdowns and extreme weather driving up forecasts for agriculture.

The Reserve Bank of India (RBI) announced that it will raise the repo rate by 50 basis points for the third time in August to 5.40%. A basis point is one percent. The RBI maintained its inflation forecast for 2022-23 at 6.7% and forecast real (inflation-adjusted) GDP growth of 7.2%.

According to official data, retail inflation in India rose 7% in August, compared with a rise of 6.71% in July, due to higher food prices. Consumer inflation was above the central bank’s 4% ceiling (+/- 2%) for the eighth consecutive month.

The latest World Bank report highlights that raising interest rates alone may not be enough to curb supply-side inflation and that countries should focus on increasing the supply of goods.

“Policy makers are likely to shift their focus from reducing consumption to increasing production,” Malpass said in the statement, according to a report by World Bank economists Justin-Damien Ginet, M Ayhan Kose and Naotaka Sugawara , the statement underscored fears of a recession. According to the report, central banks should continue their efforts to curb inflation without triggering a global recession.

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