According to the World Bank, interest rate increases by central banks around the world could lead to a global recession in 2023.
Central banks have raised rates “with a degree of synchronicity rarely experienced during the preceding five decades” to counter rising prices, the research added.
Raising interest rates makes borrowing more expensive, slowing the rate of price increases.
But it also raises the cost of borrowing, which can impede economic expansion.
The World Bank’s warning comes before the US Federal Reserve and Bank of England’s monetary policy gatherings, which are anticipated to raise key interest rates next week.
According to research, the three biggest economies in the world—the US, China, and the euro area—have been slowing down significantly.
Economic problems are already beginning to show themselves. Delivery juggernaut FedEx issued a warning to investors on Thursday, predicting that revenue would fall hundreds of millions of dollars short of expectations due to a sudden and significant decrease in activity, particularly in Asia and Europe.
In reaction to the decline in demand, the company announced it would close hundreds of offices and scale back its operations.
FedEx shares dropped more than 20% as a result of the announcement, which caused a broad sell-off of the stock. Other shipping companies’ stock prices also dropped, including those of Amazon, Deutsche Post, and Royal Mail.
The rate of price growth, or inflation, just reached a 40-year high in the US and the UK.
Demand increased as constraints related to the pandemic loosened, while costs for electricity, fuel, and food rose as a result of the conflict in the Ukraine.
In 2007, a subprime mortgage crisis in the US served as the catalyst for a global financial catastrophe.
Following the failure of the Lehman Brothers investment bank in September 2008, this turned into a full-fledged crash.
A month later, the Fed, the European Central Bank, the Canadian, Swedish, and Swiss central banks all reduced their benchmark interest rates in unison.