The Centre for Economics and Business Research (CEBR) also predicts that India's economy will reach USD 10 trillion in 2035 and it will be the world's third-largest by 2032
The world will enter a recession in 2023 as higher borrowing costs to combat inflation caused a number of economies to contract, according to the Centre for Economics and Business Research (CEBR).
The global economy surpassed USD 100 trillion for the first time in 2022 but will stall in 2023 as policymakers fight rising prices, according to the British consultancy's annual World Economic League Table.
“The world economy is likely to enter a recession next year as interest rates rise in response to higher inflation,” said Kay Daniel Neufeld, director and head of Forecasting at CEBR.
“The battle against inflation is not yet won,” according to the report. Despite the economic costs, we expect central bankers to stick to their guns in 2023. The cost of lowering inflation to more manageable levels is a weaker growth outlook for the next few years, the report added.
The findings are more pessimistic than the latest International Monetary Fund forecast. This institution warned in October that more than a third of the world economy will contract and that there is a 25 per cent chance that global GDP will grow by less than 2 per cent in 2023, defining a global recession.
Nonetheless, by 2037, global GDP will have doubled as developing economies catch up with richer ones.
The East Asian and Pacific regions will account for more than a third of global output by 2037, while Europe's share will be less than a fifth.
The CEBR derives its base data from the IMF's World Economic Outlook and forecasts growth, inflation and exchange rates using an internal model.
China is expected to overtake the United States as the world's largest economy in 2036, six years later than previously predicted. This reflects China's zero-covid policy and rising trade tensions with the West, both of which have slowed its growth.
CEBR had anticipated the switch in 2028 but was pushed back to 2030 in last year's league table. It now believes the tipping point will occur in 2036, or even later if Beijing attempts to seize 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 a sharp global recession and a resurgence of inflation,” the CEBR predicted.
However, the cost to China would be much greater, and this could derail any attempt to lead the world economy, according to the report.
The report also predicts that India's economy will reach USD 10 trillion in 2035 and it will be the world's third-largest by 2032. Over the next 15 years, the UK will remain the world's sixth largest economy, with France ranking seventh, but Britain is no longer expected to grow faster than European peers due to “a lack of growth-oriented policies and a clear vision of its role outside of the European Union.”
According to the report, the global economy is still a long way from the USD 80,000 per capita GDP level at which carbon emissions decouple from growth, implying that additional policy interventions are required to meet the target of limiting global warming to 1.5 degree Celsius above pre-industrial levels.