Recession on horizon for world economy in coming year, says research

As 2023 approaches, the world faces a recession threat, says UK-based Centre for Economics and Business Research (CEBR). Higher borrowing costs aimed at controlling inflation have caused a number of economies to contract.

'It's likely that the world economy will face recession next year as a result of the rises in interest rates in response to higher inflation,' said Kay Daniel Neufeld, director and head of Forecasting at CEBR.

For the first time, the global economy crossed a $100 trillion in 2022, however it will stall in 2023 as the struggle against high prices continues, the research centre said at its annual World Economic League Table.

'The battle against inflation is not won yet. We expect central bankers to stick to their guns in 2023 despite the economic costs. The cost of bringing inflation down to more comfortable levels is a poorer growth outlook for a number of years to come,' the report added.

The centre had warned in October that more than a third of world's economy will contract and a 25% chance exists that global GDP will grow less than 2% in 2023, defining that as global recession.

The research centre data is based on the International Monetary Fund's (IMF) World Economic Outlook, and uses an internal model to forecast growth, inflation and exchange rates.

China which is set to overtake the US as the world's largest economy until 2036 at the earliest is seeing a slowdown in its economic expansion. It's zero Covid policy and high trade tensions with the West are causing the slowdown, the report said.

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The take over which was supposed to happen by 2028, according to the CEBR will only happen till 2036 or later if China tries to take control of Taiwan consequentially facing retaliatory trade sanctions.

"The consequences of economic warfare between China and the West would be several times more severe than what we have seen following Russia's attack on Ukraine. There would almost certainly be quite a sharp world recession and a resurgence of inflation," CEBR said.

"But the damage to China would be many times greater and this could well torpedo any attempt to lead the world economy."

The CEBR also predicted that India will become the third $10 trillion economy in 2035 and the world's third largest by 2032.

While the United Kingdom will remain the world's sixth largest economy, and France will be in seventh place over the next 15 years.

Britain however, will no longer grow faster than its European peers due to 'an absence of growth oriented policies and the lack of a clear vision of its role outside of the European Union,' said the report.