The World Bank is warning of a global recession in 2023 with devastating consequences on Emerging Markets and Developing Economies (EMDEs), including Ghana.
The impending economic retardation, the World Bank said, would be brought about
as Central Banks concurrently raise interest rates in their quest to halt
persistent inflation.
According to the Bretton Wood institution, in 2022, the threat of a global
recession had increasingly haunted policymakers as they have seen rapid
deterioration of growth prospects amid rising inflation.
“In 2023, the global economy would experience a recession similar in magnitude
to the one in 1982, with growth slowing to 0.5 per cent,” the Bank said in its
September 2022 Equitable Growth, Finance, and Institutions Policy Notes (EFI
Policy Notes).
It explained that Central Banks had to raise interest rates by an added two
percentage points, on top of the two-percentage point increase already seen
over the 2021 average to drive inflation lower.
The Banks, however, noted that an increase of that size, along with financial
market stress, would slow global Gross Domestic Product (GDP) growth to 0.5 per
cent in 2023, or a 0.4 per cent contraction in per capita terms, which would
meet the technical definition of a global recession.
Therefore, “the potential for abrupt policy shifts in major economies to lead
to acute global financial stress is clear in the historical record of global
recessions,” the report noted.
Commenting on the report, Mr David Robert Malpass, World Bank Group President,
said: “Global growth is slowing sharply, with further slowing likely as more
countries fall into recession.”
“My deep concern is that these trends will persist, with long-lasting
consequences that are devastating for people in emerging markets and developing
economies.” Mr Malpass echoed.
The World Bank Group President asked policymakers to shift focus from reducing
consumption to boosting production “to achieve low inflation rates, currency
stability and faster growth.”
He recommended that: “Policies should seek to generate additional investment
and improve productivity and capital allocation, which are critical for growth
and poverty reduction.”
The report noted that global short-term rates would surge as a result, rising
560 basis points from 2021 to 2023 - an increase roughly comparable to the
440-basis point rise that took place between 1980 and 1982.
It also said that the macroeconomic effects of sharply deteriorating global
financial conditions, as well as weaker confidence, would compound the
headwinds from globally synchronous policy tightening.
“As a result, this scenario would imply that global GDP growth would be reduced
by 1.9 percentage points in 2023 and one percentage point in 2024, relative to
the baseline,” the report noted.
The world economy has experienced four global recessions over the past seven
decades - in 1975, 1982, 1991, and 2009, during which annual real per capita
global output contracted, accompanied by weakening of other key indicators of
global economic activity.
Source: GNA