Global economy risks falling into stagflation
World Bank slashes growth forecast
The world per capita income growth will to fall to zero this year, and "that certainly would qualify as a global recession," the World Bank says.
The global economy risks falling into a harmful period of 1970s-style “stagflation,” sparked chiefly by Russia’s invasion of Ukraine, the World Bank warned Tuesday as it slashed its annual growth forecast.
Thetoxic combination of weak growth and rising prices could trigger widespread suffering in dozens of poorer countries still struggling to recover from the upheaval of the Covid-19 pandemic.
The stark forecast came as the international development lender cut its global growth estimate to 2.9%, 1.2 percentage points below the January forecast, due to the severe downturn caused by the war.
“The risk from stagflation is considerable with potentially destabilising consequences for low and middle income economies,” World Bank President David Malpass told reporters.
“For many countries recession will be hard to avoid.”
And if risks to the outlook materialise, global growth could slow even more sharply - triggering a worldwide recession, Malpass warned.
COMPOUNDING DAMAGE
The bank’s Global Economic Prospects report said the Ukraine war is compounding the damage from the pandemic and magnifying the slowdown in the global economy, “which is entering what could become a protracted period of feeble growth and elevated inflation.”
The slump comes after growth recovered to 5.7% in 2021 following the pandemic downturn - marking the “sharpest deceleration following an initial recovery from global recession in more than 80 years.”
The report notes similarities to the 1970s when growth stalled and inflation skyrocketed with supply factors fuelling price hikes and following a long period of low interest rates.
But in contrast to that period, the US dollar is strong, and major financial institutions are in solid position.
The Russian invasion and Western sanctions on Moscow have sent grain and oil prices soaring, threatening to worsen hunger in poor countries and causing drivers around the world to face eye-popping prices at the pump.
STATS
The World Bank chief stressed the need to increase production to combat rising prices, especially for energy, as short supplies of natural gas and fertilizer are harming food production.
Malpass also said it was “crucial” to avoid export restrictions and subsidies that “magnify the rise in prices and distort markets.”
Likewise, the bank warned against trying to resolve the inflation spike with price controls or export restrictions which would only worsen the damage.
Malpass said that would cause per capita income growth to fall to zero, and “that certainly would qualify as a global recession.”
Even without that dire outcome, per capita income in developing economies this year will be nearly five percent below its pre-pandemic trend.
The report cut the US growth estimate by 1.2 points to 2.5%, and the forecast for China was lowered 0.8 point to an unusually low 4.3%.
Meanwhile the euro area forecast was cut to 2.5%, and Japan to 1.7%.
Russia’s economy is expected to contract this year by 11.3%.– Fin24/AFP
Thetoxic combination of weak growth and rising prices could trigger widespread suffering in dozens of poorer countries still struggling to recover from the upheaval of the Covid-19 pandemic.
The stark forecast came as the international development lender cut its global growth estimate to 2.9%, 1.2 percentage points below the January forecast, due to the severe downturn caused by the war.
“The risk from stagflation is considerable with potentially destabilising consequences for low and middle income economies,” World Bank President David Malpass told reporters.
“For many countries recession will be hard to avoid.”
And if risks to the outlook materialise, global growth could slow even more sharply - triggering a worldwide recession, Malpass warned.
COMPOUNDING DAMAGE
The bank’s Global Economic Prospects report said the Ukraine war is compounding the damage from the pandemic and magnifying the slowdown in the global economy, “which is entering what could become a protracted period of feeble growth and elevated inflation.”
The slump comes after growth recovered to 5.7% in 2021 following the pandemic downturn - marking the “sharpest deceleration following an initial recovery from global recession in more than 80 years.”
The report notes similarities to the 1970s when growth stalled and inflation skyrocketed with supply factors fuelling price hikes and following a long period of low interest rates.
But in contrast to that period, the US dollar is strong, and major financial institutions are in solid position.
The Russian invasion and Western sanctions on Moscow have sent grain and oil prices soaring, threatening to worsen hunger in poor countries and causing drivers around the world to face eye-popping prices at the pump.
STATS
The World Bank chief stressed the need to increase production to combat rising prices, especially for energy, as short supplies of natural gas and fertilizer are harming food production.
Malpass also said it was “crucial” to avoid export restrictions and subsidies that “magnify the rise in prices and distort markets.”
Likewise, the bank warned against trying to resolve the inflation spike with price controls or export restrictions which would only worsen the damage.
Malpass said that would cause per capita income growth to fall to zero, and “that certainly would qualify as a global recession.”
Even without that dire outcome, per capita income in developing economies this year will be nearly five percent below its pre-pandemic trend.
The report cut the US growth estimate by 1.2 points to 2.5%, and the forecast for China was lowered 0.8 point to an unusually low 4.3%.
Meanwhile the euro area forecast was cut to 2.5%, and Japan to 1.7%.
Russia’s economy is expected to contract this year by 11.3%.– Fin24/AFP
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