World economy heading for recession in 2023 with the weight of combating inflation – research

The world is likely to face a recession in 2023 as higher borrowing costs to fight inflation cause several economies to contract, according to the Center for Economic and Business Research (CEBR).

The global economy crossed US$100 trillion for the first time in 2022 but will stagnate in 2023 as policymakers continue their fight against rising prices, the British consultancy said in its annual World Economic League table.

“The world economy is likely to face a recession next year as a result of interest rate hikes in response to higher inflation,” said Kay Daniel Neufeld, director and head of forecasts at CEBR.

The report added that “the battle against inflation is not yet won. We expect central bankers to stick to their guns in 2023 despite the economic costs. The cost of bringing inflation down to more comfortable levels is a poorer growth outlook for years to come.”

The results are more pessimistic than the latest forecast by the International Monetary Fund (IMF) which warned in October that more than a third of the world economy will contract and there is a 25% chance that global GDP will grow by less than 2% in 2023, what would be defined as a global recession.

Even so, by 2037, the world’s gross domestic product will have doubled as developing economies catch up with richer ones. The shift in the balance of power will see the East Asia and Pacific region account for more than a third of global production by 2037, while Europe’s share will shrink to less than a fifth.

CEBR takes its basic data from the IMF‘s World Economic Outlook and uses an internal model to forecast growth, inflation and exchange rates.

China is now not expected to overtake the United States as the world’s largest economy until 2036 at the earliest – six years later than expected.

CEBR originally expected the change in 2028, which it postponed to 2030 in last year’s leaderboard. It now believes the crossover point won’t happen until 2036 and could occur even later if Beijing tries to take control of Taiwan and faces retaliatory trade sanctions.

“The consequences of the economic war between China and the West would be several times more severe than what we saw after Russia’s attack on Ukraine. There would almost certainly be a severe global recession and a resurgence of inflation,” the CEBR said.

“But the damage to China would be many times greater and that could torpedo any attempt to lead the world economy.”

CEBR also predicts that India will become the third largest US$10 trillion economy by 2035 and the third largest in the world by 2032.

Furthermore, he expects the UK to remain the sixth largest economy in the world, and France the seventh, over the next 15 years, but Britain is no longer expected to outgrow its European peers due to “the absence of growth targeted policies to growth and the lack of a clear vision of its role outside the European Union.”

It further projects that emerging economies with natural resources will receive a “substantial boost” as fossil fuels play an important role in the shift to renewable energy.

And that the global economy is a long way from the US$80,000 per capita GDP level where carbon emissions decouple from growth, meaning more policy interventions are needed to reach the goal of limiting global warming to just 1.5 degrees above pre-industrial levels.

With information from Bloomberg/Valor