An increase in interest rates by global central banks have prompted the World Bank to warn of global recession in 2023. This follows a recent increase in financial crises in emerging markets and developing countries that could do lasting harm to overall global markets. 

The rising interest rates have surpassed those seen over the past five decades and banks work to bring global inflation under control. Investors are predicting the central banks will raise global monetary policy rates by up to 4 percent in 2023, a more than 2 percent increase over 2021. 

“Global growth is slowing sharply, with further slowing likely as more countries fall into recession. My deep concern is that these trends will persist, with long-lasting consequences that are devastating for people in emerging markets and developing economies,” said World Bank Group president David Malpass.

“To achieve low inflation rates, currency stability and faster growth, policymakers could shift their focus from reducing consumption to boosting production. Policies should seek to generate additional investment and improve productivity and capital allocation, which are critical for growth and poverty reduction.”

Supply disruptions and a dwindling labor market have also forced interest rate increases during global core inflation to approximately 5 percent by 2023. This is double the five-year average prior to the global pandemic. 

According to the World Bank, the economy is now in its strongest slowdown since 1970, pointing to the U.S., China and Europe as seeing some of the sharpest economic stagnation. 

“Recent tightening of monetary and fiscal policies will likely prove helpful in reducing inflation,” said Ayhan Kose, the World Bank’s acting vice president for Equitable Growth, Finance, and Institutions. “But because they are highly synchronous across countries, they could be mutually compounding in tightening financial conditions and steepening the global growth slowdown. Policymakers in emerging markets and developing economies need to stand ready to manage the potential spillovers from globally synchronous tightening of policies.”