The World Bank lowers global growth forecast to 2.9% and warns of the risk of “stagflation”.
WASHINGTON — The World Bank on Tuesday cut its 2022 global growth forecast by almost a third to 2.9 percent, warning that Russia’s invasion of Ukraine has worsened the damage from the COVID-19 pandemic and many countries are now facing recession are faced.
The war in Ukraine had compounded the slowdown in the global economy, which is now entering a “protracted period of weak growth and elevated inflation,” the World Bank said in its Global Economic Prospects report, warning that the outlook could get worse.
In a press briefing, World Bank President David Malpass said global growth could fall to 2.1 percent in 2022 and 1.5 percent in 2023, pushing per capita growth near zero if downside risks emerge should come true.
Malpass said global growth is being hampered by the war, new COVID-19 lockdowns in China, supply chain disruptions and the rising risk of stagflation – a period of weak growth and high inflation last seen in the 1970s.
“The danger of stagflation is great today,” Malpass writes in the foreword of the report. “Subdued growth is likely to continue throughout the decade due to weak investment in most parts of the world. With inflation now at multi-decade highs in many countries and supply expected to grow slowly, there is a risk that inflation will remain high for longer.”
Between 2021 and 2024, the pace of global growth is expected to slow by 2.7 percentage points, Malpass said, more than double what it was between 1976 and 1979.
The report warned that the rate hikes needed to control inflation in the late 1970s were so steep that they triggered a global recession in 1982 and a series of financial crises in emerging and developing countries.
Ayhan Kose, director of the World Bank’s entity that makes the forecast, told reporters there was “a real risk” that a faster-than-expected tightening of financial conditions could plunge some countries into a debt crisis seen in the 1980s.
To mitigate the risks, Malpass said policymakers should work to coordinate aid to Ukraine, boost food and energy production, and avoid export and import restrictions that could lead to further hikes in oil and food prices .
The danger of stagflation is great today.
David Malpass, President of the World Bank
He also called for efforts to increase debt relief and warned that some middle-income countries are potentially at risk; stepping up efforts to contain COVID; and accelerate the transition to a low-carbon economy.
The bank forecast a slump in global growth from 5.7 percent in 2021 to 2.9 percent in 2022, a fall of 1.2 percentage points from its January forecast, and said growth in 2023 and will likely stay near that level in 2024.
Global inflation is likely to moderate over the next year but likely to remain above targets in many economies.
Growth in advanced economies is forecast to slow sharply to 2.6 percent in 2022 and 2.2 percent in 2023, after hitting 5.1 percent in 2021.
US growth slipped from 5.7 percent in 2021 to 2.5 percent in 2022, while the eurozone was expected to post 2.5 percent growth after 5.4 percent.
Emerging and developing economies achieved growth of just 3.4 percent in 2022 compared to 6.6 percent in 2021 and well below the annual average of 4.8 percent in 2011-2019.
China’s economy expanded just 4.3 percent in 2022 after growing 8.1 percent in 2021.
Negative spillovers from the war in Ukraine would more than offset any short-term boost that commodity exporters would derive from higher energy prices, with 2022 growth forecasts revised downwards in nearly 70 percent of emerging and developing economies.
The regional European and Central Asian economy, which excludes Western Europe, is expected to contract by 2.9 percent after growing 6.5 percent in 2021 and recover slightly to 1.5 percent growth in 2023. Ukraine’s economy is expected to shrink by 45.1 percent and Russia by 8.9 percent.
Growth in Latin America and the Caribbean was expected to slow sharply, reaching just 2.5 percent this year and slowing further to 1.9 percent in 2023, the bank said.
The Middle East and North Africa would benefit from rising oil prices, with growth hitting 5.3 percent in 2022 before slowing to 3.6 percent in 2023, while South Asia will see growth of 6.8 percent this year and 5 in 2023 .8 percent would be recorded.
Growth in sub-Saharan Africa is likely to slow somewhat from 4.2 percent in 2021 to 3.7 percent in 2022, the bank said.