The Brief: The World Bank is projecting a global recession next year as a result of monetary policies that cannot bring soaring inflation back to manageable levels. In a report released today, the group estimates that by 2023, global domestic production growth will contract to 0.4% per capita and will constitute a global recession. With many central banks hiking interest rates simultaneously, it recommends central banks to communicate their policies and consider the cross-border spillover impacts of monetary tightening.
Why It Matters: As central banks push for concurrent interest rate hikes that will continue into the following year, the UK is also anticipating an interest rate increase when the Bank of England (BoE) convenes next week. The World Bank has called out governments for prioritising lower spending instead of improving productivity.
Finanze® Foresights: The policy recommendations by the World Bank to counter the effects of a looming recession are necessary albeit ambitious in this current economic condition, in our opinion. The UK’s productivity growth rate has been a problem even before the pandemic as it lagged behind its G7 counterparts since 2009. While reigniting innovation among businesses is crucial, the overall sentiment among investors continues to slump as the cost of living and geopolitical issues make purchasing power more weakened. Our policymakers must begin with reviving investor optimism even in the midst of an economic crisis.
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