A new World Bank study warns of an increased risk of a global recession in 2023 due to simultaneous interest rate hikes by central banks worldwide to combat inflation. If supply disruptions and labor market pressures persist, interest rate increases may leave core global inflation at around 5 percent in 2023, nearly double the pre-pandemic average. To bring inflation down, central banks may need to raise rates further, potentially causing global GDP growth to slow to 0.5 percent, meeting the technical definition of a global recession.

The study highlights concerning indicators, including a sharp global economic slowdown, declining consumer confidence, and slowing major economies like the US, China, and the Eurozone. Policymakers are facing challenges balancing inflation control and limited fiscal capacity.

The report suggests that central banks must communicate their decisions clearly while maintaining independence. Fiscal authorities should carefully withdraw support measures while ensuring alignment with monetary goals. Policymakers also need to boost global supply by addressing labor market constraints, increasing commodity supply, and strengthening global trade networks to avoid a recession.