Global growth is running out of steam and it could take longer, according to the World Bank

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The World Bank on Tuesday sharply lowered its global growth forecast for this year, due to the war in Ukraine, and warned of the risks of “stagflation”, meaning a “prolonged period of weak growth and high inflation”, especially for low -income countries.

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The Washington institution now forecasts an increase in global gross domestic product of 2.9%, against the previous forecast of 4.1% published in January.

The global economy is expected to experience its worst slowdown following the recovery […] for over 80 yearsthe World Bank said on Tuesday in its report on the global economic outlook. The result is a growing risk of stagflationhe warned.

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This slowdown came after the continued economic recovery last year (+5.7%), following the deep recession caused by the COVID-19 pandemic.

In addition to the damage caused by the COVID-19 pandemic, Russia’s invasion of Ukraine has exacerbated the global economic slowdown.

A quote from Excerpt from World Bank press release

And the danger growing of stagflation will have bad consequences for low -income countries as well as middle -income countries.

World Bank economists expect that this pace of growth will continue until 2023-2024, when the war in Ukraine will severely disrupt activity, investment and trade in the short term. This is in addition to declining demand and the gradual removal of government assistance measures.

Due to the combined damage of the pandemic and war, the level of per capita income in developing countries this year is almost 5% lower than the trend expected before the COVID.regretted the institution in a press release.

For many countries, it will be difficult to escape the recession.

A quote from David Malpass, President of the World Bank

He called for the avoidance of trade restrictions, while recommending changes to fiscal, monetary, climate and debt policies. […] To address inappropriate capital allocation and fight against inequality.

Lower growth forecasts

The World Bank revised growth forecasts for many economies, starting with the two major economies: the United States (+ 2.5%), down 1.2 percentage points, and China (+ 4.3%) to -0.8 points.

For the euro zone, the revision is stronger: -1.7 points to 2.5%.

In contrast, growth in the Middle East and North Africa region was revised upwards (+0.9 points, up 5.3%), benefiting from rising oil prices (+ 42% expected this year).

Comparison to stagflation in the 1970s

In its report, the Washington institution also provides the first comparison of current global economic conditions to stagflation in the 1970s.

Economists have specifically assessed how stagflation will affect emerging markets and developing economies.

They note that the current situation is comparable to the 1970s in three aspects: continued supply disruptions fueling inflation, followed by a long period of very accommodating monetary policy in major advanced economies; projections of slower growth; emerging and developing economies vulnerable to the need for monetary policy restrictions to control inflation.

However, there are major differences because the dollar was strong whereas it was very weak at the time. Furthermore, the scale of commodity price increases is weaker, and the balance of major financial institutions generally strong.

More importantly, and unlike the 1970s, central banks in advanced economies and many developing economies now have clear mandates toward price stability.say economists.

The World Bank finally expects inflation to slow next year, while staying the same most likely more than the targets set in many countries.

If inflation remains high, the repetition of solutions adopted during previous stagflation could result in a sharp global recession, as well as financial crises in some emerging and developing economies. warns the Bank.

Our file War in Ukraine

Source: Radio-Canada

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