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Simultaneous rate hikes could push global economy into recession

Central banks across the world simultaneously hiking interest rates in response to inflation could edge the global economy into recession in 2023, according to the World Bank.

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The synchronicity of these increases has - according to a new study by the international financial institution - been at a scale not seen over the past five decades. And this trend is likely to continue well into next year. 


However, the expected trajectory of interest rate increases and other policy actions may not be sufficient to bring inflation back down to levels seen before the pandemic. Investors expect central banks to raise global monetary policy rates to almost four percent through 2023 - an increase of more than two percentage points over their 2021 average. 


Its research suggests that, unless supply disruption and labour market pressures subside, those interest rate increases could leave the global core inflation rate - excluding energy - at about five percent in 2023 - nearly double the five year average before the pandemic. 


It also says that - in order to cut global inflation to a rate consistent with their targets - central banks may need to raise interest rates by an additional two percentage points. If this were accompanied by financial-market stress, global GDP growth would be 0.5% in 2023 - making a 0.4% contraction in per-capita terms that would meet the definition of a global recession. 


World Banking Group’s president David Malpass 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 market and developing economies. To achieve low inflation rates, currency stability and faster growth, policymakers could shift their focus from reducing consumption to boosting production. 


“Policies should seek to generate additional investment and improve productivity and capital allocation, which are critical for growth and poverty reduction.”

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