World Bank President David Malpass believes the global economy is “dangerously close” to a recession. His comments came as the institution lowered its 2023 global growth forecast from 3 per cent to 1.9 per cent.
“We’ve lowered our 2023 growth forecast from 3 per cent to 1.9 per cent for global growth. That’s dangerously close to a world recession,” Malpass said while addressing reporters on the sidelines of the annual World Bank-International Monetary Fund (IMF) meeting.
He added that hike in interest rates, decreased capital flows, debt build-up and depreciation of currency are compounding the challenges faced by developing nations. Malpass further explained that developing nations are facing debt build-up due to high interest rates, which leads to an increase in the amount of their debt.
So, if a recession – as Malpass fears – were to happen, how bad would it be and what must the world do to tide over it?
How does recession impact whom?
Malpass is not the only one who believes that we are close to a global recession. Saugata Saha, President of Global Commodity Insights at S&P, told Business Today earlier that the credit rating agency has predicted a 40-50 per cent chance of a technical recession. He also explained that recession has a varied impact across geographies and populations.
Citing the example of the coronavirus pandemic, Saha underscored, “Look at the short recession that happened in 2020 with the onset of Covid-19. Some parts of the economy and population recovered a lot sooner than others, depending on whether you were a white-collar worker, a blue-collar worker or the segment you were working in.”
He added while labour markets have been disrupted, supply chain has also been affected. Supply chain disruptions and geopolitical events coupled with higher demand for certain commodity classes will lead to elevated commodity prices in the future.
WTO chief Ngozi Okonjo-Iweala said people will be worst affected by food crisis and inability to access energy. She mentioned, “The spectre of not having enough food is one that worries me.”
Also read: World heading towards global recession, radical policies needed to bolster growth: WTO chief
Will it be a mild recession?
KPMG, one of the Big Four accounting organisations, said in its KPMG 2022 CEO outlook survey that 86 per cent of the CEOs believe a recession is likely in the next 12 months but 58 per cent of them feel it will be mild.
The survey further underlined that recession will make post-pandemic recovery all the more difficult. While 73 per cent CEOs were of the opinion that a recession will capsize growth over three years, 71 per cent predicted company earnings falling by around 10 per cent over the 12 months in the event of a recession.
While global agencies and institutions are sounding the recession warning, US President Joe Biden said if a recession happens at all, it will be mild. Biden said in an interview, “I don’t think there will be a recession.” He added, “If it is, it’ll be a very slight recession. That is, we’ll move down slightly.”
How does the world tide over a recession?
In the midst of a raging debate on recession, the question is how to tide over a global recession? Tata Steel CEO and MD TV Narendran believes that building optimised and resilient supply chains is an important measure in this regard.
He said, ” There are opportunities to rethink business models and operating models, as well as build the necessary green infrastructure.”
World Bank President Malpass also said earlier that boosting production, additional investments, improved productivity and capital allocation should be on the top of policymakers’ checklists. He further believes targeted support for the poor is key during such trying times.
IMF chief Kristalina Georgieva said that the global institution will continue supporting the efforts of central banks around the world to contain inflation even if it has a negative impact. She also advocated for targeted measures in the fiscal arena to ensure there is no more “fuel to the flames of inflation.”
(With agency inputs)
Also read: ‘Bright spot on dark horizon’: IMF Director hails Indian economic growth amid recession fears
