World economy to ‘flatline’ as risk of recession soars

Experts downgrade their forecast for this year after lockdowns hit China and US raises interest rates

THE risk of a global recession is increasing sharply as the world is battered by booming energy prices in Europe, a zero-covid lockdown in China and higher interest rates led by the

United States, experts have warned.

Analysts at the Institute of International Finance (IIF) said they are downgrading their outlook and are now “forecasting a de facto flatlining in the global economy this year”.

Russia’s war in Ukraine is taking a considerable toll on Europe, according to the IIF’S chief economist Robin Brooks, who expects the Continent to suffer a recession later this year.

He said: “The omicron wave in China is more disruptive than we anticipated and will take a substantial toll on growth.

“Separately, US financial conditions are tightening in a disorderly fashion, with the rise in long-term real rates now comparable to the 2013 taper tantrum.

“The confluence of these shocks threatens global recession.”

Mr Brooks said the risk is that the situation could be even worse, due to investors’ alarm at higher interest rates.

Overall the IIF expects the eurozone to grow by 1pc this year, aided by an initial rebound following lockdowns in 2021. The US is predicted to grow by 2.5pc with China at 3.5pc, far below the 5.5pc target rate set by the communist regime.

This will add up to global growth of 2.2pc this year, down from 6pc last year and below the pre-pandemic growth rate of 2.7pc in 2019.

Deutsche Bank slashed its forecasts for UK economic growth, warning that the economy will barely dodge a recession this year.

Its analysts expect GDP to shrink in the second quarter, eke out modest growth from July to September, and then contract again in the final three months of the year – evading the usual definition of a recession of two consecutive quarters in the red, but still making for an extremely weak year.

Data to be published on Wednesday is expected to show inflation hit 9.2pc in April, its highest since the early 1980s, driven by the 54pc jump in the household energy price cap.

This indicates Britain will be in stagflation, the combination of stagnating growth and runaway inflation that characterised the worst years of the 1970s.

It is pushing the Bank of England to raise interest rates to combat price rises despite the risk this poses to growth, which will be suppressed further by higher borrowing costs.

Meanwhile, consumer confidence in the US slumped to an 11-year low in the face of rising prices, according to a University of Michigan survey.

Ian Shepherdson, of Pantheon Macroeconomics, said: “The expectations measure is now so low that under normal circumstances it would be consistent with zero year-over-year growth in real consumers’ spending.”