Is the world going to face another recession in the year 2023?

The global economy is entering a pronounced slowdown amid fresh threats from COVID-19 variants and a rise in inflation, debt, and income inequality that could endanger the recovery in emerging and developing economies, according to the World Bank’s latest Global Economic Prospects report. Global growth is expected to decelerate markedly from 5.5 percent in 2021 to 4.1 percent in 2022 and 3.2 percent in 2023 as pent-up demand dissipates and as fiscal and monetary support is unwound across the world.

The rapid spread of the Omicron variant indicates that the pandemic will likely continue to disrupt economic activity in the near term. In addition, a notable deceleration in major economies—including the United States and China—will weigh on external demand in emerging and developing economies. The world economy is simultaneously facing COVID-19, inflation, and policy uncertainty, with government spending and monetary policies in uncharted territory. Rising inequality and security challenges are particularly harmful for developing countries,” said World Bank Group President David Malpass. “Putting more countries on a favourable growth path requires concerted international action and a comprehensive set of national policy responses.

As per the World Bank report, the slowdown will coincide with a widening divergence in growth rates between advanced economies and emerging and developing economies. Growth in advanced economies is expected to decline from 5 percent in 2021 to 3.8 percent in 2022 and 2.3 percent in 2023—a pace that, while moderating, will be sufficient to restore output and investment to their pre-pandemic trend in these economies. While Deutsche Bank is the first major bank to forecast an imminent economic downturn, investors, both retail and professional, share the group’s gloomy outlook.

According to a Bloomberg Markets Live survey conducted between March 29 and April 1, 48 percent of investors expect the US to fall into recession in 2023. Another 21 percent expect the downturn to happen in 2024, while 15 percent of the 525 respondents expect the recession to come as early as this year. With the pandemic still lingering, the Russian invasion of Ukraine putting additional pressure on already surging consumer prices and Chinese lockdowns potentially disrupting supply chains, the economic outlook is currently clouded by uncertainties. And where there are clouds, there’s often a chance of rain, or, in this case, a recession.

Experts says, In light of the projected slowdown in output and investment growth, limited policy space, and substantial risks clouding the outlook, emerging and developing economies will need to carefully calibrate fiscal and monetary policies. They also need to undertake reforms to erase the scars of the pandemic. These reforms should be designed to improve investment and human capital, reverse income and gender inequality, and cope with challenges of climate change.

Dr. Deepak Kumar Sahu, President & CEO, VARINDIA