By The World Bank has recently issued a warning regarding a potential economic crisis in 2023. Despite some areas of the world showing relief from the COVID-19 pandemic, the world’s largest economies are facing the possibility of a sharp and prolonged slowdown, especially in developing countries.
Cause for Concern:
The World Bank cites several potential factors that could contribute to this economic crisis. These include higher-than-expected inflation, abrupt interest rate hikes to combat inflation, a resurgence of the COVID-19 pandemic, and escalating geopolitical tensions. Any one of these factors could potentially push the global economy into recession.
Impact on Developing Countries:
The report highlights that the potential slowdown would have a significant impact on developing countries. These countries often have weaker economic systems and may struggle to recover from a crisis of this nature. The report notes that “the recovery of low-income countries will likely be slower and more challenging, given the limited space for policy stimulus and persistent pandemic-related health and social constraints.”
Inflation and Interest Rates:
One of the key factors mentioned in the report is the potential for higher-than-expected inflation. The World Bank notes that “abrupt rises in interest rates to contain inflation could lead to a sharp tightening of financial conditions and disruptions in capital flows.” This, in turn, could further slowdown the global economy.
Resurgence of COVID-19:
The World Bank also warns that a resurgence of the COVID-19 pandemic could have a significant impact on the global economy. The report notes that “the pandemic has created deep economic scars that will take years to heal and has heightened uncertainty about the economic outlook.”