Tue, Dec 27, 2022 page10

• World economy headed for recession

  GLOOMY OULTOOK: New forecasts see China overtaking the US as the world’s largest economy in 2036 — six years later than previous predictions, a report said

  • Bloomberg
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  The world faces a recession next year, as higher borrowing costs aimed at tackling inflation cause a number of economies to contract, the Centre for Economics and Business Research said.

  The global economy surpassed US$100 trillion for the first time this year, but will stall next year as policymakers continue their fight against soaring prices, the UK-based consultancy said in its annual World Economic League Table.

  “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 the center.

  

  A woman browses at a market in Maadi, Cairo, on Monday last week.

  Photo: REUTERS

  “The battle against inflation is not won yet. We expect central bankers to stick to their guns in 2023 despite the economic costs. The cost of bringing inflation down to more comfortable levels is a poorer growth outlook for a number of years to come,” the report said.

  The findings are more pessimistic than the latest forecast from the IMF, which warned in October that more than a third of the world economy would contract and there is a 25 percent chance of global GDP growing by less than 2 percent next year, which it defines as a global recession.

  By 2037, world GDP could have doubled, as developing economies catch up with the richer ones.

  The shifting balance of power would see the East Asia and Pacific region account for more than a third of global output by 2037, while Europe’s share shrinks to less than a fifth, the report added.

  The center takes its base data from the IMF’s World Economic Outlook and uses an internal model to forecast growth, inflation and exchange rates.

  The report said China is not set to overtake the US as the world’s largest economy until 2036 at the earliest — six years later than expected.

  That reflects China’s “zero COVID-19” policy and rising trade tensions with the West, which have slowed its expansion.

  The center had originally expected the switch in 2028, which it pushed back to 2030 in last year’s league table. It now says the cross-over point would not happen until 2036, and could come even later if Beijing tries 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. There would almost certainly be quite a sharp world recession and a resurgence of inflation,” it said. “But the damage to China would be many times greater and this could well torpedo any attempt to lead the world economy.”

  It also said that:

  India would become the third US$10 trillion economy in 2035 and the world’s third-largest by 2032.

  The UK would remain the world’s sixth-largest economy, and France seventh, over the next 15 years, but the UK is no longer set to grow faster than 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.”

  Emerging economies with natural resources would get a “substantial boost,” as fossil fuels play an important part in the switch to renewable energy, the report said.

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