The world economy will slide into a recession in 2023 as a number of economies will contract due to surging borrowing costs introduced to combat inflation, the UK-based Centre for Economics and Business Research (CEBR) has predicted in its latest report.
The world economy surpassed $100 trillion for the first time ever in 2022 but will stall in 2023 as “the battle against inflation is not won yet,” while regulators will keep raising interest rates, the consultancy said in its annual World Economic League Table.
“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 a number of years to come,” the director and head of forecasting at CEBR, Kay Daniel Neufeld, wrote.
The report’s conclusions are more pessimistic than the most recent forecast by the International Monetary Fund (IMF), which predicted in October that more than a third of the world’s economy will contract in 2023.
The CEBR, which bases its growth, inflation, and exchange-rate forecasts on data from the IMF and an in-house model, said that “inflation has become the main economic story” of the past year. The analysts warned that “even though we are starting to see price growth decelerating in some economies, volatility in global energy markets and entrenched core inflation suggest that it will remain front and center in 2023 as well.”
China Would Outperform U.S.
The consultancy also predicted that China would outperform the U.S. and become the world’s largest economy by 2036 – six years later than previously expected, due to the country’s zero-Covid policy and escalating trade tensions with the West, which have slowed its growth.
India’s Economy Will Be The Third Largest
According to the study, India’s economy will become the third largest overall by 2032 and will reach the $10 trillion mark by 2035.
IMF’s Call On U.S. Inflation
Inflation in the U.S. has not subsided sufficiently enough to abandon last year’s restrictive monetary policy, Gita Gopinath, the deputy head of the International Monetary Fund (IMF), has told the Financial Times.
According to Gopinath, it is “important” for the US Federal Reserve, which acts as the country’s central bank, to “stay the course” in efforts to lower prices until there was a “very definite, durable decline in inflation” across the sectors not related to either food or energy.
“If you see the indicators in the labor market and if you look at very sticky components of inflation like services inflation, I think it is clear that we have not turned the corner yet on inflation,” she told the news outlet, adding that there is also a “very narrow path” for the country to avoid a recession in the coming months.
Gopinath’s comments come as U.S. inflation figures have started to subside in the past couple of months, leading analysts to suggest the price surge may have passed its peak. Prices in the country rose by 7.1% year-on-year in November, for instance, compared with 7.7% in October, according to the US Labor Department.
On December 14, in its most recent attempt to rein in inflation, the Fed hiked the key interest rate by 50 basis points – up to 4.25-4.5%. According to Gopinath, the regulator may need to raise the rate to about 5% and keep it there throughout the year in order to avoid further price increases.
“It is another challenging year for monetary policy, but it is a different kind of challenge. The last year was about quickly tightening monetary policy and how far to go. Now for lots of countries, the question is how long to stay on hold,” she noted.
Gopinath also warned that Europe may take longer than the US to battle rising prices, saying that “we are looking well into 2024 before we start seeing inflation coming closer to the ECB’s 2% target.”
