As central banks across the world simultaneously hike interest rates in response to inflation , the world may be edging towards a global recession in 2023 and a string of financial crises in emerging market and developing economies that would do them lasting harm , according to a comprehensive new study by the World Bank .
The study relies on insights from previous global recessions to analyse the recent evolution of economic activity and presents scenarios for 2022 – 24 . A slowdown – such that the one now underway – typically calls for countercyclical policy to support activity . However , the threat of inflation and limited fiscal space are spurring policymakers in many countries to withdraw policy support even as the global economy slows sharply .
Central banks around the world have been raising interest rates in the last 12 months , with a degree of synchronicity not seen over the past five decades – a trend that is likely to continue well into 2023 , according to the report . Yet the currently expected trajectory of interest-rate increases and other policy actions may not be sufficient to bring global inflation back down to levels seen before the pandemic . Investors expect central banks to raise global monetary-policy rates to almost 4 % through 2023 – an increase of more than 2 % over their 2021 average .
Unless supply disruptions and labour-market pressures subside , those interest-rate increases could leave the global core inflation rate ( excluding energy ) at about 5 % in 2023 – nearly double the five-year average before the pandemic , the study finds . To cut global inflation to a rate consistent with their targets , central banks may need to raise interest rates by an additional 2 %, according to the report ’ s model . If this were accompanied by financial-market stress , global GDP growth would slow to 0.5 % in 2023 – a 0.4 % contraction in per capita terms that would meet the technical definition of a global recession .
“ Global growth is slowing sharply , with further slowing likely as more countries fall into recession ,” said David Malpass , President , World Bank Group . “ My deep concern is that these trends will persist , with longlasting consequences that are devastating for people in emerging market and developing economies . To achieve low inflation rates , currency stability and faster growth , policymakers could shift their focus from reducing consumption to boosting production . Policies should seek to generate additional investment and improve productivity and capital allocation , which are critical for growth and poverty reduction .”
The study highlights the unusually fraught circumstances under which central banks are fighting inflation today . Several historical indicators of global recessions are already flashing warnings . The global economy is now in its steepest slowdown following a post-recession recovery since 1970 . Global consumer confidence has already suffered a much sharper decline than in the runup to previous global recessions .
In response to these findings , industry experts offer their thoughts .
Mark Hughes , Regional VP , UK & Ireland at Epicor
News headlines have been filled with stories of rising costs , job cuts and the decline of the UK ’ s manufacturing industry , and although it cannot be denied that we are living through an uncertain and challenging economic environment , now is not the time for businesses to start navel-gazing . Historically , Britain is well known for its entrepreneurialism and innovation , so regardless of their size or sector , businesses must focus on searching for new opportunities where they can add further value using their unique expertise . I believe one of the best ways to prepare for difficult economic headwinds is to prioritise investment in new areas with a renewed focus on collaboration .
Many businesses are now recalibrating their growth strategies to increase profitability and bolster resilience . As we saw in our 2022 Epicor Industry Insights Report on the manufacturing , distribution , building supply , automotive and retail industries , 78 % of businesses have shifted their core business models in the last year to remain competitive . The results also revealed that over half ( 56 %) of distributors have adapted their business models to offer direct-tocustomer sales as a new breed of ‘ distro-facturers ’, with 85 % experiencing growth from their diversification .
Ongoing national and international supply chain disruption combined with the rising cost of importing goods means it is now a good time for manufacturers to think about ramping up their in-house production capabilities by leveraging existing relationships to diversify either their product range or market strategy into complementary new businesses . These tactics can increase the wallet share from customers and reach into untapped markets , either at home or abroad .
One example of this is our client , Focus SB , a UKbased manufacturer and global exporter of electrical wiring accessories that switched its business model to
Mark Hughes , Regional VP , UK & Ireland at Epicor
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