What Happens During the 2023 Recession? Here are the risks and causes

Jakarta

The World Bank has announced the risk of a global recession in 2023. Based on the causes and risks, what will happen to 2023 recession?

Basically, an economic recession is a condition in which a country’s economy is deteriorating. Quoted from the Financial Services Authority website, the recession can be seen from a negative gross domestic product (GDP), unemployment rises, so that real economic growth is negative for two consecutive quarters.

Causes of the 2023 recession

The World Bank noted that the 2023 recession was triggered by conditions in which central banks around the world simultaneously raised interest rates in response to inflation.

Inflation is the process of rising prices generally and continuously. There are various triggers for inflation, such as the COVID-19 pandemic and the Russia-Ukraine conflict that complicates the supply chains of the raw materials needed by various countries.

Global investors expect central banks to increase global monetary policy rates by nearly 4% by 2023. This increase is more than 2 percentage points above the 2021 average.

A World Bank study found that rate hikes could drive global core inflation, excluding energy, to around 5% by 2023, unless supply disruptions and labor market pressures do not come loose. This figure is almost double the five-year average of inflation before the pandemic.

Meanwhile, to reduce global inflation to levels consistent with their targets, central banks would need to raise interest rates by an additional 2 percentage points.

If rising interest rates are accompanied by pressures on financial markets, global gross domestic product (GDP) growth will slow to 0.5% in 2023. This means there will be a 0.4% per capita contraction. Well, this condition is technically what is meant by a global recession.

In addition to rising interest rates, the financial crisis in emerging markets and emerging economies is said to trigger a long-lasting recession in 2023.

World Bank Group President David Malpass said the 2023 recession risks slowing global growth.

A range of impacts of the recession that are at risk for the community include rising prices for daily necessities including food, job cuts, rising prices for energy supplies, and rising prices. poverty rates.

“Global growth is slowing dramatically, with the possibility of slowing further as more countries fall into recession,” Malpass said.

He said, in the 2023 recession, there are efforts that can be made to improve economic growth.

“To achieve low inflation, currency stability and faster growth, policymakers can shift the focus from reducing consumption to increasing production,” he said.

“Policies should seek to generate additional investment and increase productivity and capital allocation, which are key to growth and poverty reduction,” Malpass continued.

World Bank Acting Vice President for Fair Growth, Finance and Institutions Ayhan Kose further explained that the recent tightening of monetary and fiscal policies has helped reduce inflation.

However, the connected conditions between countries could exacerbate each other in terms of tightening financial conditions and exacerbating a slowdown in global growth. For this reason, it is necessary to communicate between countries while maintaining the independence of each.

He explained, anticipating 2023 recessionamong other things, policy makers must strengthen foreign exchange reserves, provide assistance to vulnerable families, facilitate the reallocation of workers who have been made redundant.

In addition, he continued, it is also necessary to accelerate the transition to low-carbon energy sources, introduce energy consumption measures and strengthen global trade networks so that they are not hindered.

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