The world faces a recession in 2023, higher borrowing costs aimed at tackling inflation will cause many economies to decline, according to the Center for Economics and Business Research. The global economy will top $100 trillion for the first time in 2022 but will stall in 2023 as policymakers continue to fight soaring prices, the British consultancy said in its annual World Economic League table.
“The global economy is likely to face a recession next year as interest rates rise in response to higher inflation,” said Kay Daniel Neufeld, director and head of forecasting at CEBR.
The report added that: “The fight against inflation is not yet won. We expect central bankers to stick to their guns in 2023 despite the economic costs. The cost of reducing inflation to a more comfortable level is worse growth prospects for many years ahead.
The findings are more pessimistic than the International Monetary Fund’s latest forecast. The institution warned in October that more than a third of the world economy will shrink and that there is a 25% chance that global GDP will grow by less than 2% in 2023, which it defines as a global recession.
Yet by 2037, global gross domestic product will double as developing economies catch up with richer ones. Thanks to the changing balance of power, East Asia and the Pacific will account for more than a third of global production by 2037, while Europe’s share will shrink to less than a fifth.
CEBR takes its base data from the IMF’s World Economic Outlook and uses an internal model to forecast growth, inflation and exchange rates.
China will now overtake the US as the world’s largest economy in 2036 at the earliest – six years later than expected. This reflects China’s zero-covid policy and rising trade tensions with the West have slowed its expansion.
CEBR originally expected a transition in 2028, which it pushed back to 2030 in last year’s league table. Now it thinks the transition point won’t occur until 2036, and could come even later if Beijing tries to take control of Taiwan and faces retaliation trade sanctions.
“The consequences of an economic war between China and the West would be several times more serious than what we saw after the Russian attack on Ukraine. There would almost certainly be a fairly sharp global recession and a rebound in inflation,” CEBR said.
“But the damage to China would be many times greater and that could torpedo any attempt to lead the world economy.”
It also predicted that:
• India to become third largest $10 trillion economy by 2035 and third largest in the world by 2032
• The UK will remain the world’s sixth largest economy and France seventh for the next 15 years, but Britain will no longer grow faster than its European peers due to “an absence of growth-oriented policies and a lack of a clear vision of its role outside the European Union.”
• Developing economies with natural resources will receive a “substantial boost” as fossil fuels play an important role in the transition to renewable energy sources
• The global economy is far from the $80,000 GDP per capita level at which carbon emissions are decoupled from growth, meaning further policy interventions are needed to meet the goal of limiting global warming to just 1.5 degrees above pre-industrial levels.
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