The World Bank warns that the world looks to be edging toward a global recession as central banks are forced to hike interest rates to fight high inflation, as reported by the British media The Guardian.
The world’s three largest economies – the United States, China and the eurozone – have been slowing sharply, and even a «moderate hit to the global economy over the next year could tip it into recession,» the bank said in a new study.
It said the world economy was now in its steepest slowdown following a post–recession recovery since 1970, and consumer confidence had already fallen more sharply than in the run–up to previous global recessions.
Expressing concerns that these trends would persist, with damaging consequences, World Bank President David Malpass said:
«Global growth is slowing sharply, with further slowing likely as more countries fall into recession.»
The World Bank also warned that the global core inflation rate, excluding energy, could remain at about 5% next year, nearly double the five-year average before the pandemic, unless supply disruptions and labour market pressures subside.
To drive inflation lower, central banks may need to raise interest rates by an additional two percentage points, on top of the two-point increase already seen, it said.
Malpas urged policymakers to shift their focus from reducing consumption to boosting production, including efforts to generate additional investment and productivity gains.
Retail sales in Britain fell much more than expected last month, by 1.6%, in another sign that the economy is sliding into recession as the cost–of–living crisis – high inflation and falling real wages– becomes a real issue for the consumers.
Sterling has fallen to a new 37–year low against the dollar, as a sharp drop in British retail sales heightened recession fears.
The pound fell more than 1% to USD 1.1350, and has lost 0.5% against the euro to EUR 1.1407.
Another factor is dollar has been strong against a number of major currencies as the US Federal Reserve has aggressively hiked interest rates, thereby offering better returns for investors.