A global recession is around the corner!

I have been trying to sound the alarm for the global economy in my columns for a while now. I have written at length on the issues that trigger global inflation, especially soaring energy and food prices. The prevalent idea in these columns was that tight monetary and fiscal policies implemented against inflationary pressures coming from the cost channel so intensely would cause economic stagnation.

In a new report titled “Is a Global Recession Near?, the World Bank pointed out that central banks' increasing interest rates this year in a way not seen in the last 50 years may trigger a series of financial crises along with the economic recession.

The World Bank is concerned that these financial crises may cause permanent damage, especially in developing economies. Moreover, it is aruged that excessively tight monetary and fiscal policies may cause a global recession in 2023.

The World Bank draws attention to the sharp slowdown in the U.S., Eurozone, and China, which it calls "the world's three largest economies". In the report, it is stated that more interest rate hikes are needed in order to reduce global inflation, but it is predicted that these rate hikes will slow down the global gross domestic product together with the financial market stress. In other words, a prescription written for one disease triggers another one.

World Bank President David Malpass makes an interesting suggestion when evaluating the policies implemented to combat global inflation. Malpass recommends that policymakers consider increasing production rather than focusing on reducing consumption.

According to the World Bank, the priority should be to design growth to reduce poverty and to ensure that additional investments are made to achieve this goal.

The main reason behind the World Bank's warning of recession in its latest report is rapid interest rate hikes to fight inflation. However, as I mentioned above, it is suggested that reducing consumption may not give the desired result in the fight against inflation and instead it is recommended to increase production.

However, at this point, there is a very serious test in front of the economies in question. Because almost everyone is certain that energy prices will increase the inflationary pressure throughout the world, especially in the countries in the Euro Zone, during the winter season. Therefore, we'd do well to remember that more production will require more energy and increasing demand will push prices up. In summary, a recession with a high risk of permanent damage to the global economy is around the corner in 2023!