The World Bank’s most recent prediction is that the global economy is “very close to going into recession.”
It thinks the world economy will only grow by 1.7% this year, a significant change from June when it said it would grow by 3%.
The report says that Russia’s invasion of Ukraine and the pandemic’s effects are to blame for several things.
People say that the biggest problem that policymakers need to solve is the effects of higher interest rates.
David Malpass, the World Bank President, said that the downturn would be “broad-based” and that income growth in almost every part of the world would probably be “slower than it was in the decade before Covid-19.”
The 1.7% growth rate would be the lowest since 1991, excluding the recessions caused by the global financial crisis in 2009 and the Covid epidemic in 2020.
The world’s most important places for economic growth are the US, the Eurozone, and China. But the World Bank said that all three were “going through a period of pronounced weakness,” which worsened the problems of poorer countries.
As these pressures ease, the World Bank predicted that the rate of price increases worldwide would slow from 7.6% in 2022 to 5.2% this year.
“Price spikes are possible in some cases,” The bank said that, in general, it thought that energy prices would go down. It showed that production was going up worldwide, but demand decreased in Europe, where businesses and homes used less gas because of an energy crisis.
The prices of crops are also expected to drop by 5% this year, but they will still be much higher than they were a few years ago because they went up by 13% in 2022.
Even with these changes, inflation will likely stay well above the healthy normal rate of 2% for a long time.
In response to the problem, central banks in dozens of countries, including the US and the UK, have raised interest rates to cool their economies and ease the pressures driving up prices.
But they are walking a thin line as they try to deal with the rising cost of living without sending their economies into a recession.
The World Bank said that businesses don’t invest as much because it costs more for them to borrow money. It also said that more businesses need help paying their bills. In addition, US interest rates are expected to go up even more, putting a lot of pressure on developing economies. So, many of them have to borrow US dollars.
Even though the world economy is “under pressure,” the bank said that people could still have hope if the right government policies were implemented. It gave ideas for increasing investments and creating more jobs, dealing with climate change, helping poorer countries pay off their debts, and making international trade easier.
What is a recession, and how could I be affected by one?
A country’s economy grows when everything is going well.
Gross Domestic Product (GDP) is the value of a country’s goods and services. When GDP goes up, so do people’s incomes.
But sometimes, the GDP goes down, which means the economy isn’t doing well.
Usually, a recession means that GDP has gone down for two months or quarters in a row.
Since 2020, when the coronavirus pandemic was at its worst, the UK economy hasn’t been in a recession.
Most people agree that growth in the economy is a good thing.
It usually means that there are more jobs. Since companies make more money, they can pay their employees and shareholders more.
When the economy grows, wages and profits go up. This means that the government gets more tax money.
This means that the government can spend more on benefits, public services, and worker pay or cut taxes.
When the economy gets worse, these things all change.
What else is happening in the world?
The International Monetary Fund (IMF) says that problems are also happening in other economies.
But in terms of economic growth, the UK is at the bottom of the G7 group of leading industrial nations.
The BBC’s economics editor, Faisal Islam, says this is because of a number of things, such as the UK’s need to import gas and a lack of workers.
The IMF says that the global economy is slowing down faster than expected, and inflation rates are higher than they have been for a long time.
Part of this is because of Russia’s war in Ukraine, which has increased energy and food prices.
The Covid pandemic has also had lasting effects.
How could an economic recession hurt me?
Some people could lose their jobs, and the number of people out of work could go up. It might be harder for high school dropouts and college graduates to get their first job.
Some people might need help to move up in their jobs or get pay raises that are big enough to keep up with rising prices.
But not everyone feels the pain of a recession in the same way, which can worsen inequality.
Most likely to need help are people on welfare or fixed incomes.
Read Also: IMF says a third of the world is in recession
How do you get out of a recession?
“Stagflation” happens when the economy is growing slowly, and prices are going up at the same time. Unfortunately, this problem is hard to solve.
People usually expect the Bank of England, not part of the government, to cut interest rates when a country is in a recession.
This makes it cheaper for businesses and people to borrow money, boosting spending and growth.
But because prices are rising so quickly, the bank decided to raise interest rates instead.
