recession world bank

The World Bank has slashed its 2023 global GDP growth forecast to a mere 1.7% which is way below its previous projection of 3% growth. It also fears a recession this year amid slowing global growth.

If the World Bank’s projections turn out to be true, it would be the third worst global growth in almost three decades. The global economy fared poorly only during the Global Financial Crisis and the 2020 COVID-19 pandemic.

The World Bank blamed the global monetary policy tightening for the slowing growth. It said, “Global growth has slowed to the extent that the global economy is perilously close to falling into recession.”

Notably, Central Banks globally have been on a rate-hiking spree. Fed started hiking its rate hikes in 2022 with the first hike since 2018. It started with a 25-basis point rate hike at the March meeting and then raised rates by 50 basis points at the May meeting. After that, it raised rates by 75 basis points in the next four consecutive meetings.

While the Fed raised rates by 50 basis points in December, the minutes showed that members worry that the markets might misread the slower pace of hikes. The dot plot had anyways showed that median expectations call for another 75-basis point rate hike in 2023.

That said, some analysts believe that the Fed would need to cut rates sometime in 2023 amid a slowing US economy. The Fed has so far quashed all hopes of a pivot and instead said that rates might stay higher for some time before it resorts to rate cuts.

World Bank Warns of Recession amid Slowing Growth

While warning of a possible recession in 2023, the World Bank lowered the growth forecast for several economies. It now expects the US GDP to expand by only 0.5% which is 190 basis points lower than the previous projection of 2.4%.

While recession impacts most sectors of the economy, some of the investments are largely recession-proof.

The World Bank expects the Chinese economy to rise 4.3% this year, down from its previous forecast of 5.2%. It also termed China as the biggest wild card for the world economy as the country’s recovery might be dampened if its reopening leads to major outbreaks.

Meanwhile, the World Bank is not the only agency worried about a recession, even the IMF predicted that a third of the world would be in a recession this year. IMF’s head Kristalina Georgieva said, “Even countries that are not in recession, it would feel like recession for hundreds of millions of people.”

The Fed is Also Worried about a Recession

The Fed is also worried about a recession even as it has asserted that it won’t give up its fight against inflation. The minutes of the Fed’s December meeting said, “the staff still viewed the possibility of a recession sometime over the next year as a plausible alternative to the baseline.”

It also noted the inversion in the US yield curve which has preceded almost all the recession in the country.

US stocks along with most other risk assets tumbled in 2022 amid the deteriorating macro environment. Fed’s rate hikes, recession fears, and the fallout of FTX bankruptcy have also taken a toll on digital assets. We have a guide on whether crypto is recession-proof.

Several companies like FedEx and Maersk have also warned of a recession. Among business leaders, Elon Musk, Jeff Bezos, and Jamie Dimon have been warning of an economic slump.

Gundlach Finds Non-US Stocks and Bonds Attractive

Before the Fed’s December meeting, Elon Musk tweeted that the recession would be “greatly amplified” if the Fed raises rates again. He has been warning of a recession for quite some time now and even laid off some Tesla employees amid the economic slowdown.

Cathie Wood of ARK Invest, who is among the most notable Tesla bulls has also faulted the Fed for its relentless rate hikes.

Amid sky-high inflation, Wood believes that the US economy is headed for deflation. Bond guru Jeffrey Gundlach echoed her views and believes that bonds are an attractive investment option.

Gundlach also favors non-US stocks amid the current macro environment. Notably, Chinese stocks are outperforming in 2023 amid hopes of a revival in the country’s economy after it abandoned its zero-COVID policy. There is a guide on buying stocks with a regulated broker.

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