The “specter of a global recession” has World Bank economists worried that the world is entering a downturn not seen since the 1970s — one that could severely hurt the development prospects of low-income countries that have yet to recover from the pandemic, the bank warned.
World Bank data shows where food inflation is hitting hardest
Food inflation is hitting everywhere, but low- and middle-income countries are getting battered the most by price hikes.
Cautioning that predicting the future is impossible, the bank in a report released Thursday laid out three scenarios, from bad to worse to a global recession. Even the least damaging case sees slowing global growth through next year and inflation would remain above target levels, though moderating.
With the world in a fragile place, one more hit may be enough to cause havoc. Devex asked Ayhan Kose, chief economist and director of the prospects group at the bank, to explain four big concerns.
Avoiding a recession: Kose says “there is a narrow path” to avoid a sharp downturn and even a global recession, which he concedes is a “possibility.” Central bankers and other policymakers will need to get the policy right — and they need a little “luck.”
So far, they have not been fortunate, with extended supply chain disruptions, health crises, and the Russian invasion of Ukraine sending commodity prices sky high.
“We see the global economy weakening, and weakening very rapidly,” Kose said. This bodes poorly for a best-case scenario.
Fighting inflation: The ongoing interest rate hiking cycle at major central banks is far from done, but may not be enough to restore price stability. Policymakers need to coordinate their inflation-fighting measures, Kose said.
“If everybody's increasing interest rates, the collective impact will be larger,” he said. In other words, there is a risk of central bankers slowing economic growth more than they intend.
Debt distress: “We’ve had a record increase in debt levels over the past decade,” Kose said. He warns there are “significant debt problems” out there, citing the recent case of Sri Lanka’s collapse.
The worse the global economy performs, the worse the prospect will be for countries in debt distress, especially for lower-income nations. The Group of 20 leading economies needs to be vigilant and prepare for a worse case, he added.
U.S. dollar doom: “Dollar strength will be with us for the foreseeable future,” Kose said, in part due to Federal Reserve rate hikes. Low-income countries are facing a real challenge, he noted, with their currencies depreciating. Governments need to prepare for tighter conditions over a longer-period.
About the author
Shabtai Gold
Shabtai Gold is a Senior Reporter based in Washington. He covers multilateral development banks, with a focus on the World Bank, along with trends in development finance. Prior to Devex, he worked for the German Press Agency, dpa, for more than a decade, with stints in Africa, Europe, and the Middle East, before relocating to Washington to cover politics and business.
