World Bank warns of Biggest Global recession in 2023 amid Economic slowdown | Explained

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World Bank warns of global recession in 2023


WHAT HAS HAPPENED ?

A new study by the World Bank has revealed that with the central banks across the world simultaneously hiking interest rates in response to inflation, The world may be edging toward a global recession in 2023 and a string of financial crises in emerging markets and developing economies that would do them lasting harm.

The report said that the central banks around the world have been raising interest rates this year with a degree of synchronicity not seen over the past five decades, A trend that is likely to continue well into next year.

VERY DIFFICULT TO BRING DOWN INFLATION

The report noted, "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 percentage points over their 2021 average."

The report highlighted that 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, adding that central banks may need to raise interest rates by an additional 2% points to control inflation.

SO WHAT SHOULD BE DONE ?

David Malpass President of World Bank Group said, "global growth is slowing sharply, with further slowing likely as more countries fall into recession.

My deep concern is that these trends will persist, with long lasting consequences that are devastating for people in emerging markets and developing economies."

Malpass further said, "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 World Bank further clarified that several historical indicators of global recession are already flashing warnings and the global economy is now in its steepest slowdown following a post recession recovery since 1970.

Late last month, we came to know that India experienced a 13.5% growth in the April-to-June quarter of this year, which made it the world's fastest-growing large economy. India also replaced Great Britain as the world's fifth-biggest economy.

There was disappointment in some quarters as a few surveys had predicted an even higher growth rate.

But the long-term trajectory of the Indian economy seems set, with India expected to emerge as the world's fourth-largest economy, overtaking Germany, by 2027.

In a recent speech, Michael Patra, deputy governor of the Reserve Bank of India (RBI), underlined India's emerging role as the "second most important driver of global growth after China", with India's growth financed primarily by domestic savings.

Compared to 18% for China and 16% for the US, India's share of global gross domestic product (GDP) already stands at 7%.

This is happening at a time when the global economy has been facing negative headwinds as a result of rising food and energy prices, China's zero-covid policy and Russia's senseless war against Ukraine.

The Indian economy has stayed resilient partly because of government intervention and partly because of its unique structure.


SERIOUS REFORMS NEEDED

Of course, this is not enough, and, as has been pointed out by many, India's per capita income remains far behind nations that it is overtaking in terms of economic growth rate.

A sustained policy effort would be needed to ensure that the present trajectory continues and is not merely a post-covid bounce.

Serious reforms are needed to make India more investor friendly, particularly at a time when China has run out of favour.

As investors seek new venues, Indian policymakers should be bold enough to take advantage of this unique moment in India's political economy.

But never before has India story looked more credible than it does today with the world in turmoil and India standing out as a beacon of hope.

GEOPOLITICAL ADVANTAGE TO INDIA

This economic trajectory of India also gives it a distinct place in global politics today.

There is a reason why the West, despite its differences with India over Ukraine, has continued to substantively engage with New Delhi.

In fact, India's ties with the West have grown significantly amid all the negative press that India has received in the West.

Policymakers in the West recognize the real story-the rise of India as a credible geopolitical and geo-economic player in the 21st century.

Even as the India-West mutual courtship continues, India is maintaining its partnership with Russia.

China too finds itself in a bind and India's stiff resistance to its aggressive pursuit along the Line of Actual Control. India, as a consequence, finds itself in a 'geopolitical sweet spot' that it should make the most of.

CONCLUSION

In the past, New Delhi's inability to exploit the extant balance of power to its advantage cost it dearly.

A prudent nation should be able to identify opportunities in the existing structure of global politics and shape its external engagement accordingly in pursuit of its interests.

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