EFI Policy Note 4 SEPTEMBER 2022 Is a Global Recession Imminent? Justi n Damien Guénette, M. Ayhan Kose, and Naotaka SugawaraEQUITABLE GROWTH, FINANCE, AND INSTITUTIONS POLICY NOTE 6995 Is a Global Recession Imminent? Justin Damien Guénette, M. Ayhan Kose, and Naotaka Sugawara∗∗ ∗∗ Equitable Growth, Finance, and Institutions Policy Notes (EFI Policy Notes) are prepared under the direction of the Vice President for Equitable Growth, Finance, and Institutions (EFI). EFI Policy notes analyze topical issues of importance to policy makers in emerging market and developing economies. The findings, interpretations, and conclusions expressed in this paper are entirely those of the authors. They do not necessarily represent the views of the International Bank for Reconstruction and Development/World Bank and its affiliated organizations, or those of the Executive Directors of the World Bank or the governments they represent. ∗ Guénette: World Bank, Email: [email protected]; Kose: World Bank, Brookings Institution, CEPR, CAMA, Email: [email protected]; Sugawara: World Bank, Email: [email protected] . We thank Amat Adarov, Carlos Arteta, Kevin Clinton, Antonio Fatas, Indermit Gill, Jongrim Ha, Graham Hacche, Patrick Kirby, Franziska Ohnsorge, Joseph Rebello, James Rowe, Franz Ulrich Ruch, and Christopher Towe for their detailed comments and suggestions. Lorez Qehaja and Kaltrina Temaj provided excellent research assistance. CONTENTS EXECUTIVE SUMMARY 1 I. INTRODUCTION 3 II. GLOBAL RECESSIONS SINCE 1970 7 II.1. MAIN CHARACTERISTICS 7 II.2. EVENTS DURING GLOBAL RECESSIONS AND DOWNTURNS 8 III. GLOBAL ACTIVITY 10 III.1. EVOLUTION OF GROWTH FORECASTS 10 III.2. RECENT DEVELOPMENTS IN HISTORICAL CONTEXT 12 IV. POLICY RESPONSES 14 IV.1. EVOLUTION OF POLICIES 14 IV.2. RECENT POLICY ACTIONS IN HISTORICAL CONTEXT 17 V. GLOBAL GROWTH SCENARIOS 21 V.1. BASELINE SCENARIO 22 V.2. SHARP DOWNTURN SCENARIO 24 V.3. GLOBAL RECESSION SCENARIO 27 VI. CONCLUSION 31 APPENDIX I. IDENTIFYING THE TURNING POINTS OF THE GLOBAL BUSINESS CYCLE 35 APPENDIX II. GLOBAL ECONOMIC MODEL 38 REFERENCES 41 FIGURES Figure 0. Global recession: activity, policies, and outcomes 2 Figure 1. Global context 4 Figure 2. Global recessions 8 Figure 3. Growth forecasts 11 Figure 4. Recent developments and global recessions 13 Figure 5. Interest rates, government expenditures, and debt 16 Figure 6. Inflation, interest rates, and fiscal balances 17 Figure 7. Policies during global recessions 20 Figure 8. Global scenarios: GDP and trade growth 23 Figure 9. Global scenarios: inflation, interest rates, and oil prices 26 Figure 10. Scenarios in relation to past global recessions 28 Figure 11. Vulnerabilities, crises, and growth 33 TABLES Table 1. Global scenarios: global inflation, nominal and real interest rates 25 Table 2A. Global scenarios: GDP growth 29 Table 2B. Global scenarios: Per capita GDP growth 30 Table I.1. GDP growth during global recessions 35 Table I.2. Global recessions: duration and amplitude (with quarterly series) 36 Table I.3. GDP growth during global downturns 36 Table I.4. List of lowest and highest growth rates 37 The odds of recession in Europe, the United States, and China are significant and increasing, and a collapse in one region will raise the odds of collapse in the others… The risks of a global recession trifecta are rising by the day. Kenneth Rogoff, April 26, 2022 A global recession is entirely avoidable… Even by laxer criteria like GDP growth below 2.5 percent, global recession is very far from inevitable. Jeffrey Frankel, August 25, 2022 Whether the balance of risks is toward inflation, recession, or a smooth landing from current turbulence depends on unknowns such as the duration of the Ukraine war… …. But a global recession is certainly not inevitable. A