World Bank has cut its 2022 forecast for economic expansion globally. It has warned that there will be below-average growth and above-average inflation for several years ahead, destabilizing low- and middle-income economies several years ahead.
More into the possible stagflation
In a foreword of the latest edition of World Bank’s Global Economic Prospects report released on Tuesday, President David Malpass said that the world economy is again in danger as it faces slow growth and high inflation. According to him, even if the global recession is averted, the pain of stagflation can persist for many years unless a significant supply increase is put in place.
According to Bloomberg News, the Washington-based bank has reduced its estimated global growth from 4.1% to 2.9% from a January prediction. Due to a surge in food and energy prices, drive-by central banks to hike interest rates from near-zero levels, and supply disruptions caused by the Russia and Ukraine war.
In 2021 the global economy expanded by 5.7%, and after the Covid-19 pandemic triggered the most significant world recession after World War II.
Malpas says that many countries will find it hard to avoid a recession. The adverse shocks of the last two years mean that real income per capita is still below the covid-19 levels for about 40% of the developing countries.
Central banks are fighting a worse than anticipated surge in inflation caused by the Russian invasion of Ukraine and supply disruptions of goods, food, and energy amid lockdowns in key production areas such as China. The Bank of England and Federal Reserve, along with more than 60 monetary authorities, has hiked the interest rates this year, and in a few months, the European Bank is expected to do the same.
The accelerated inflation and slow growth have caused concern for the office of the World bank, signaling the global economy is entering a stagflation period similar to the 1970s. This has resulted in a steeper than anticipated tightening of monetary policy required to bring back inflation to the target, resulting in a hard landing.
About 60% of the 75 poorest countries globally are at the risk of debt distress, and they are also affecting the middle-income countries, according to Malpas in an interview with Bloomberg Television.
The biggest creditor is China, and they have a contract with collateral and non-disclosure of clauses, making it challenging to engage in conversation. Banks are working on ways to restructure their debts.
Some of the Report highlights:
- The US is likely to grow 2.5% in 2022, lower than projections by 1.2%.
- The World Bank has cut China’s expansion outlook to 4.3% due to Covid-19 damages and lockdowns.
- Euro-area growth is expected to slow to 2.5%, down by 1.7% in January projections.
- Ukraine’s economy to share 45.1% in 2022, while Russia may drop by 8.9 %, which was projected as an expansion earlier.
