Recession: World Bank releases forecast

recession

Image Source: Bloomberg

The latest forecast from the World Bank says that the global economy is “very close to going into recession.”

It thinks that the world economy will grow by only 1.7% this year, a big drop from the 3% it said it would grow by in June.

The report says that Russia’s invasion of Ukraine and the pandemic’s effects are to blame for several things.

People point to the effects of higher interest rates as the main problem that policymakers need to solve.

David Malpass, president of the World Bank, said that the downturn would be “broad-based” and that income growth in almost every part of the world would likely be “slower than it was in the decade before Covid-19.”

Except for the 2009 and 2020 recessions caused by the global financial crisis and the Covid epidemic, the 1.7% growth rate would be the lowest since 1991.

The US, the Eurozone, and China are the three most important places for economic growth in the world. However, 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 said it thought the rate of price increases worldwide would slow from 7.6% in 2022 to 5.2% this year.

While some “price spikes are possible.” In general, the bank said it thought energy prices would go down. It pointed to a rise in production worldwide and a drop in demand in Europe, where businesses and homes are using less gas because of an energy crisis.

The prices of crops are also expected to go down 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 normal healthy rate of 2%.

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 fine line as they deal with the rising cost of living without sending their economies into a recession.

The World Bank said businesses invest less because borrowing money costs more. It also said that more companies need help paying their debts. US interest rates, which are expected to go up even more, are also putting a lot of pressure on developing economies. As a result, a lot of them borrow US dollars.

Even though the world economy is “under pressure,” the bank said that the right government policies could give people hope. It suggested ways to increase investments and create more jobs, deal with climate change, help poorer countries pay off their debts, and make international trade easier.

What is a recession?

When everything is going well, a country’s economy grows.

When the value of the goods and services a country makes, called its Gross Domestic Product (GDP), goes up, people’s incomes tend to go up, too.

But sometimes, the GDP goes down, which shows that the economy isn’t doing well.

A recession usually means GDP has gone down for two consecutive months or quarters.

The UK’s economy hasn’t been in a recession since 2020 when the coronavirus pandemic was at its worst.

Most people think that economic growth is a good thing.

Most of the time, it means there are more jobs. As a result, companies can pay their employees and shareholders more because they are making more money.

When the economy grows, wages and profits go up, which means more money for the government in taxes.

This means that the government can spend more on benefits, public services, and workers’ wages or cut taxes.

All of these things change when the economy gets worse.

What’s going on in the rest of the world?

The International Monetary Fund (IMF) says other economies are also having trouble.

But regarding economic growth, the UK is at the bottom of the G7 group of leading industrial nations.

Faisal Islam, the BBC’s economics editor, says this is because of several things, like the UK’s need for imported gas and a lack of workers.

The IMF says that, on a global scale, the economy is slowing down faster than expected, and inflation rates are higher than they have been for a long time.

Part of this is Russia’s war in Ukraine, which has caused energy and food prices to rise.

The Covid pandemic also has effects that keep going on.

How could a recession hurt me?

Some people could lose their jobs, and the number of unemployed could increase. It might be harder for college graduates and high school dropouts to get their first job.

Some people may 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 the same way, and inequality can grow as a result.

People on benefits and fixed incomes are especially likely to need help.

Read Also: IMF says a third of the world in recession this year

How can a recession be ended?

“Stagflation” happens when the economy struggles to grow and inflation is simultaneously high. This is a tough problem to solve.

When a country is in a recession, people usually expect the Bank of England, which is not part of the government, to cut interest rates.

This makes it cheaper for businesses and people to borrow money, boosting spending and growth.

But since prices are going up so fast, the bank decided to raise interest rates instead.

Opinions expressed by Atlanta Wire contributors are their own.

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