1 of 5 | Traders work on the floor of the New York Stock Exchange on Wall Street in New York City on Friday. A new study by the World Bank urges policymakers around the world to focus less on consumption and more on increasing production. Photo by John Angelillo/UPI | License Photo
Sept. 16 (UPI) -- Rising interest rates and various market conditions around the world could lead to a global recession next year, according to an analysis by the World Bank.
The institution said policy actions amid a string of financial crises in emerging markets and developing economies, along with central banks hiking interest rates to control inflation, could make the difference between a recession and no recession.
If there is a global recession in 2023, the analysis said it could do "lasting harm."
The analysis noted that interest rates have gone up worldwide recently "with a degree of synchronicity not seen over the past five decades."
"Global growth is slowing sharply, with further slowing likely as more countries fall into recession," World Bank Group President David Malpass said in a statement.
"My deep concern is that these trends will persist, with long-lasting consequences that are devastating for people in emerging market and developing economies."
The World Bank said its global growth forecasts for 2022 and 2023 have been downgraded significantly since the beginning of this year. It noted that every global recession over the last 50 years was immediately preceded by significant weakening the year before.
"Policymakers need to navigate a narrow path that requires a comprehensive set of demand- and supply-side measures," the World Bank's report said. "On the demand side, monetary policy must be employed consistently to restore, in a timely manner, price stability.
"Fiscal policy needs to prioritize medium-term debt sustainability while providing targeted support to vulnerable groups."
The World Bank study relies on data from previous recessions to analyze and project possible scenarios over the next two years.
The present economic slowdown, it noted, calls for a change in focus in countries around the world. It said policymakers now are focusing too much on inflation and less consumer spending. Lower consumer spending, if demand is greater than supply, can make inflation worse.
"To achieve low inflation rates, currency stability and faster growth, policymakers could shift their focus from reducing consumption to boosting production," Malpass said.
"Policies should seek to generate additional investment and improve productivity and capital allocation, which are critical for growth and poverty reduction."