World Bank has raised concern as Central Banks across the world simultaneously hike interest rates in response to inflation.
The World Bank said in a new study that central banks around the world have been raising interest rates this year with a degree of synchronicity not seen over the past five decades, a trend that is likely to continue.
The study noted that the world may be edging towards a global recession in 2023.
According to the study, investors expect central banks to raise global monetary policy rates to almost four per cent through 2023, an increase of more than two percentage points over their 2021 average.
“If this were accompanied by financial-market stress, global GDP (gross domestic product) growth would slow to 0.5 per cent in 2023. That is a 0.4 per cent contraction in per-capita terms that would meet the technical definition of a global recession,” the study noted.
The World Bank acting vice president for Equitable Growth, Finance, and Institutions, Ayhan Kose noted that “Because the rate hikes are highly synchronous across countries, they could be mutually compounding in tightening financial conditions and steepening the global growth slowdown.
“Policymakers in emerging market and developing economies need to be ready to manage the potential spillovers from globally synchronous tightening of policies”.
World Bank President David Malpass noted that “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.”