London: With decades-high inflation stifling post-lockdown spending and forcing central banks to raise borrowing costs at an unprecedented rate to bring it under control, it has been a difficult year for the global economy. They may be able to manage prices, but it could cost them dearly by 2023.

As a result of higher interest rates in response to higher inflation, the world economy is probably going to experience a recession next year, according to Kay Daniel Neufeld, director and head of forecasting at the Center for Economics and Business Research, who made the statement this week.

Not everyone agrees that a recession in the world economy is imminent. However, it is a possibility that growth is projected to decline even further in 2022 followed by a sharp slowdown.

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In its October forecast, the International Monetary Fund predicted that global growth would decline to 2.7% by 2023. Barring the global financial crisis and the worst pandemic, this will be the weakest year for the world economy since 2001.

The group issued a warning in November that the outlook had become even more "bleak" since doing so. Three variables could determine whether there will be a global recession: what central banks decide to do next, the effects of China's impending reopening, and energy prices. Here's how each of these factors could affect the year ahead.

According to the IMF, inflation is "the most immediate threat to present and future prosperity". As energy prices fall and higher interest rates ripple through the economy, it has begun to decline in the US and Europe.

However, central banks have made it clear that they do not plan to stop raising interest rates any time soon, even though they are more comfortable with smaller increases. “We are not pivoting,” Christine Lagarde, president of the European Central Bank, said earlier this month. "We haven't changed."

Central bankers are holding meeting after meeting as they sort through the latest data. They have emphasized that they are unsure about how high rates will need to be raised, or for how long, to keep inflation close to 2%.

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If prices rise faster than expected, central banks may act more aggressively than anticipated, which will put additional pressure on the world economy.

US Federal Reserve Chairman Jerome Powell said after the central bank's meeting in December, "We think we will have to maintain an accommodative stance of policy for some time."

The Chinese government has used mass testing, centralized quarantine and stringent contact tracing to contain the spread of COVID-19 for nearly three years. After nationwide protests against the tough restrictions, it is now suddenly reversing these actions.

The reopening of the world's second largest economy could provide a boost to growth. But it also has its dangers.

According to Bruce Kassman, head of economic and policy research at JPMorgan Chase, "China's current gloomy situation suggests that the potential for a lift is large," he said earlier this month. But recent experience also shows that major setbacks often occur when openings intensify and health care systems become overburdened.

China is currently facing a wave of coronavirus infections, but Beijing continues to move forward with plans to relax its rules. In a significant step toward reopening its borders, it announced this week that it would drop the quarantine requirement for visitors arriving from abroad from early January. Meanwhile, other countries have banned visitors from China out of concern about the emergence of new variants.

Forecasts are still uncertain as a result of Russian President Vladimir Putin's war in Ukraine, especially for European countries that are distancing themselves from Russian energy but may still experience shortages.

Europe could experience natural gas shortages in 2023 if Russia stops all gas exports to the region and temperatures drop, according to a report by the International Energy Agency.

Another windfall is a potential increase in energy demand from China as its economy booms. According to Diane Swonk, head of economics at KPMG, they are intertwined. Energy prices are low partly as a result of China's unusually low strength.

The Organization for Economic Co-operation and Development has warned that if prices rise further due to shortages in energy supplies or if governments in Europe are forced to implement rationing to reduce demand for gas and electricity this winter and summer. If done, its most recent economic forecasts may need to be revised. after winter.

The upcoming 12 months are probably going to be challenging, whether or not the world enters a recession. Guillaume Menuet, head of investment strategy and economics at Citi Private Bank for Europe, the Middle East, and Africa, described the environment as "challenging."

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Aside from 2020 and the 2007–2008 financial crisis, his team predicts that the world will experience the slowest economic growth in the past 40 years. Although economists disagree on how severe and how long they might be, many countries could still experience downturns accompanied by painful increases in unemployment.

The IMF noted in October that the slowdown "will be broad-based" and may "reopen economic wounds that were only partially healed post-pandemic," adding that "the worst is yet to come" and that "for many people 2023 will feel like a recession."