A new study by the World Bank has claimed that the world may be edging towards a global recession and financial crisis by 2023 as central banks across continents have hiked interest rates in response to inflation. The recession period remains blurred, but it would do lasting harm to developed economies and emerging markets.
According to the World Bank, central banks worldwide have been raising interest rates this year with a degree of synchronicity not seen in the past few decades. The report also claims that the recent hike in interest rates would not immediately help the countries to bring down the inflation rate, and it would further lead to a financial crisis by next year.
The increase in interest rates holds the potential to leave the global core inflation rate at about 5 per cent in 2023, which would be nearly double the five-year average before the pandemic. The World Bank President, David Malpass, said, "To achieve low inflation rates, currency stability and faster growth, policymakers could shift their focus from reducing consumption to boosting production."
He added, "Policies should seek to generate additional investment and improve productivity and capital allocation, which are critical for growth and poverty reduction," The World Bank reported. According to the study, the global economy is already on its steepest slowdown, and global recession warnings are flashing worldwide.
Meanwhile, countries like India, which is on its path to becoming a $5 trillion economy, only if its Gross Domestic Product (GDP) rate grows at nine per cent per annum for consistent five years, might also get affected as it mainly relies on imports from several countries worldwide.
How To Combat Global Recession?
According to the World Bank, by easing labour market constraints, boosting the global supply of goods and services, and strengthening global trade networks, every country can combat the global recession collectively. The government should focus on easing the price pressures, through which more economic participation would be seen.
The Asian countries, including India, can shift their focus from higher consumption to boosting the production rate of commodities to tackle the effects of a global recession. The central banks also play a crucial role as their policy decisions directly impact a country's interest and inflation rate.
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