Recession bound: Latest findings paint gloomier picture for world economy in 2023

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The world is on track for a recession in 2023 as higher borrowing costs to address inflation lead to economic contraction in various countries, according to the Centre for Economics and Business Research (CEBR). In its annual World Economic League Table, the British consultancy said that the global economy, which surpassed $100 trillion for the first time in 2022, will stall in 2023 as policy makers continue their efforts to address rising prices. “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. These findings are more pessimistic than the latest forecast from the International Monetary Fund, which warned in October that more than a third of the world economy will contract and there is a 25% chance of global GDP growing by less than 2% in 2023, which the IMF defines as a global recession.

However, the CEBR’s report also stated that by 2037, world gross domestic product will have doubled as developing economies catch up with the richer ones. The East Asia and Pacific region is expected to account for over a third of global output by 2037, while Europe’s share is expected to shrink to less than a fifth. The consultancy’s forecasts are based on data from the IMF’s World Economic Outlook and an internal model that predicts growth, inflation, and exchange rates.

According to the CEBR, China is now not expected to overtake the US as the world’s largest economy until 2036 at the earliest, which is six years later than previously expected. This delay is due to China’s zero Covid policy and slowing expansion as a result of rising trade tensions with the West. The consultancy had originally predicted that China would overtake the US in 2028, but pushed that prediction back to 2030 in last year’s league table. It now thinks the crossover point will not happen until 2036, and it may come even later if Beijing attempts to take control of Taiwan and faces 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,” the CEBR warned. “There would almost certainly be quite a sharp world recession and a resurgence of inflation. But the damage to China would be many times greater and this could well torpedo any attempt to lead the world economy.”

In addition to its predictions about the global economy, the CEBR also made several other forecasts in its annual report –

1) India will become the third $10 trillion economy in 2035 and the world’s third largest economy by 2032.

2) The UK is expected to remain the world’s sixth largest economy, with France remaining in seventh place, over the next 15 years. However, the UK is no longer expected to 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.”

3) Emerging economies with natural resources are expected to get a “substantial boost” as fossil fuels play an important role in the switch to renewable energy.

4) The global economy is a long way from the $80,000 per capita GDP level at which carbon emissions decouple from growth, which means that further policy interventions are needed to meet the target of limiting global warming to just 1.5 degrees above pre-industrial levels.