At the yearly World Economic League Table, the Centre for Economics and Business Research (CEBR) said several economies would face a recession in 2023 due to global interest rate hikes.
“It’s likely that the world economy will face recession next year as a result of the rises in interest rates in response to higher inflation,” CEBR Forecasting head Kay Daniel Neufeld said.
The COVID-19 pandemic caused disruptions in supply chains all around the globe, increasing prices for goods. Central banks, including the U.S. Federal Reserve, use interest rate hikes to tame inflation. The Fed aims to bring inflation down to a two percent rate by raising the benchmark interest rates in every rate-setting meeting since March this year.
However, CEBR pointed out that the fight against inflation would end anytime soon. The research firm said central banks would likely continue their tight monetary policies in 2023 despite the risks of poor economic growth for “a number of years to come.”
CEBR used the World Economic Outlook from the International Monetary Fund (IMF) as its base data to come up with the prediction. The firm then utilized an internal model to predict inflation, growth and exchange rates.
The IMF projected that economic contraction would happen in more than a third of the world's economy. More optimistic than CEBR, the IMF projected a 25 percent probability of a global recession — a less than two percent global GDP growth — in 2023.
Despite the expected setback, experts at the IMF project a 100 percent global GDP growth by 2037 as developing countries match the developed economies. East Asia and the Pacific Region are expected to account for more than a third of global GDP by 2023. Meanwhile, Europe’s output will fall to less than a fifth.
The expected contraction in the global economy will also affect China, which now will definitely not sideline the U.S. as the largest economy in the world, at least until 2036. CEBR analysts said the country’s strict COVID-19 policy had slowed down its economic expansion. China’s economic growth can get slower as the country is likely to face various trade sanctions — particularly from Western countries — if Xi’s administration insists on controlling Taiwan.
“The consequences of economic warfare between China and the West would be several times more severe than what we have seen following Russia’s attack on Ukraine,” CEBR said in its report. “There would almost certainly be quite a sharp world recession and a resurgence of inflation.”
According to CEBR, India will be the third economy in the world to hit $10 trillion by 2035. India is expected to become the third-largest economy earlier than that in 2032. The U.K. will maintain its position as the sixth-largest economy in the world over the next 15 years. However, it will not outpace the economies of other European countries because of the “absence of growth-oriented policies and the lack of a clear vision of its role outside of the European Union.”
In the coming year, countries with rich natural resources will see significant GDP growth because of the global plan to switch to renewable energy, a process that requires fossil fuels. At the moment, GDP growth is still positively correlated with carbon emissions. Data showed that at an $80,000 per capita GDP level, the carbon emission level would decouple from economic growth.
Fear of recession affecting stock market
The global stock market has fluctuated throughout the year due to inflation and fear of a recession. Last week, three major indexes on Wall Street ended Friday’s trading session with gains but losing on some days of the trading week. Experts said that stock indexes in the U.S. performed worst since the crisis in 2008.
This is also the case for the stock markets in Europe and most of Asia. The markets traded mostly on the green at the beginning of this trading week, but data showed reduced liquidity in trading activities.