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World Bank cuts global growth outlook and warns of 70s stagflation


Global growth is expected to slip to 2.9% in 2022 from 5.7% in 2021 — 1.2 percentage points lower than previously predicted, according to the World Bank.

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On Tuesday, the World Bank lowered its forecast for global growth and said that many countries may fall into recession if the economy slides into a period resembling the 1970s.

Global economic expansion is expected to slip to 2.9% this year from 5.7% in 2021 — 1.2 percentage points lower than the 4.1% predicted in January, the Washington-based bank said in its latest Global Economic Prospects report.

According to the report, growth will then remain at that level for 2023 to 2024. However, inflation in most countries remains high, which points out stagflationary threats.

Russia’s invading of Ukraine and its subsequent surge of commodity prices has added to pandemic-induced economic damage. According to the World Bank, the economy is entering what the World Bank calls “a long period of weak growth and increased inflation”.

“The conflict in Ukraine and China’s lockdowns are hampering growth. Supply-chain disruptions and the threat of stagflation also threaten to derail it. For many countries, recession will be hard to avoid,” World Bank President David Malpass said.

The report projected that growth in advanced economies will slow to 2.6% by 2022, down from 5.1% in 2020. After this, it is expected to moderate to 2.2% per year in 2023.

In the meantime, expansion in emerging market economies and developing countries is expected to decline to 3.4% from 6.6% by 2022. That’s well below their annual average of 4.8% between 2011-2019.

Inflation continues to rise in developed and advanced economies. This has prompted central banks to increase interest rates and tighten their monetary policy to reduce the price explosion.

Stagflation of the 1970s

This low-inflation environment is causing high inflation and has led to a weakening of growth. drawn parallels with the 1970sA period of severe stagflation that required dramatic increases in the interest rates of advanced economies. This triggered a series of financial crises within emerging markets and developing countries.

According to the World Bank, the June report provides a “first systematic” comparison of the current situation and the 50-year ago one.

There are obvious parallels in the current situation to what it was back then, it stated. It cited supply-side problems, weakening prospects and vulnerabilities of emerging economies in relation to tightening monetary policy that is needed to curb inflation.

However, differences such as the strength and stability of the U.S. Dollar, lower oil prices generally, and strong balance sheets at large financial institutions provide room for error.

The World Bank asked policymakers to help Ukraine and counter the rise in food and oil prices. It also recommended that debt relief be provided for emerging economies.