Higher borrowing costs to tame inflation will set the world economy into a recession in 2023, according to the Centre for Economics and Business Research.

“It is likely that the world economy will face recession next year as a result of the rises in interest rates in response to higher inflation,” says Kay Daniel Neufeld, director and head of forecasting at CEBR. “Central banks were very slow to realize the scale of the inflationary problems about which we have been warning and, as a result, the rises in interest rates and the monetary deceleration have been abrupt.”

Neufeld adds: “The good news is that inflation should fall quite quickly. The bad news is that in many countries, it will take a recession to make this happen.”

China’s zero-COVID policies will delay its overtaking the U.S. economy until 2036, the think tank estimates. Two years ago, CEBR had forecast that happening in 2028.

Furthermore, should China attack Taiwan, the sanctions from the international community will further suppress China’s economy, which derives 15% of its gross domestic product (GDP) from exports to those countries, CEBR says.

This will upset the world’s balance of economic power significantly, CEBR warns: “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 quite a sharp world recession and a resurgence of inflation.

“But the damage to China would be many times greater, and this could well torpedo any attempt to lead the world’s economy.”

India is set to become the world’s third economic superpower by 2032 and the third $10 trillion economy by 2035.

Russia, which had the 9^th largest economy in the world in 2022, is likely to suffer from the sanctions imposed against it following its invasion of Ukraine. CEBR expects it will rank as the world’s 14^th largest economy by 2037.

The world economy surpassed $100 trillion for the first time in 2022, but is on the path to contract next year as central banks continue to increase interest rates, the consultancy said.

“The battle against inflation is not won yet,” the report says. “We expect central bankers to stick to their guns in 2023 despite the economic costs. The cost of bringing inflation down to more comfortable levels is a poorer growth outlook for a number of years to come.”

In October, the International Monetary Fund warned of a 25% chance of global GDP growing by less than 2% in 2023. IMF defines this as a global recession.

CEBR bases its estimates on IMF data and its own growth models.