Global economy in its steepest slowdown since 1970, says World Bank

Raising rates makes borrowing more expensive to try to bring down the pace of price rises

September 17, 2022

World Bank sees rising risk of global recession in 2023

On Thursday, the World Bank said that the global economy is in its steepest slowdown since 1970, BBC reported. It said a study found that “the world’s three largest economies – the US, China, and the euro area – have been slowing sharply“.

Interest rate hikes by central banks around the world could trigger a global recession in 2023, the World Bank has warned, media reports said. Central banks have raised rates “with a degree of synchronicity not seen over the past five decades” to tackle soaring prices, World Bank said.

Raising rates makes borrowing more expensive to try to bring down the pace of price rises. But it also makes loans more costly, which can slow economic growth.

The warning from the World Bank came ahead of the monetary policy meetings of the US Federal Reserve and Bank of England, which are expected to increase key interest rates next week.

“Under the circumstances, even a moderate hit to the global economy over the next year could tip it into recession,” the report said.

The World Bank also called on central banks to coordinate their actions and “communicate policy decisions clearly” to “reduce the degree of tightening needed”.

Inflation, which is the rate at which prices rise, hit a 40-year-high in the US and the UK in recent months. This was driven by higher demand as pandemic restrictions eased, and as the war in Ukraine boosted energy, fuel, and food prices.

In response, central bank policymakers have raised interest rates to cool demand from households and businesses. However, big rate hikes increase the risk of recession as it can cause an economy to slow, BBC reported.

[With Inputs from IANS]

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