The World Bank has further cut its global growth forecast for 2022, warning that we have several years of above-average inflation and below-average growth, with implications that could undermine stability in low- and medium-income economies.
Economist David Malpas, the bank’s president, warned in advance of the organization’s report today (Tuesday): “The global economy is in danger again. It is facing high inflation and personal growth at the same time. Big increases in supply. “
The institution, based in Washington, DC, updated its global growth forecast for 2022 to 2.9%, after forecasting 4.1% in January and dropping to 3.2% in April due to rising energy and food prices and supply disruptions caused by Russia’s invasion of Ukraine.
“For many countries, it will be difficult to avoid a recession,” Malpas added. According to him, the shocks of the last two years mean that in about 40% of the developing economies, the real per capita income in 2023 will remain below pre-corona levels.
Central banks around the world are struggling with a spike in inflation, spurred by disruptions in the supply of goods, energy and food amid closures at major manufacturing sites in China and the war in Ukraine. More than 60 monetary authorities, including the Bank of Israel, the Federal Reserve and the Bank of England, have raised interest rates this year, and the European Central Bank – the highest monetary authority of the eurozone countries – is likely to do so in the coming months.
Back to the 80s?
Accelerating inflation and slowing growth have raised concerns among World Bank executives that the global economy is entering a period of stagnation reminiscent of the 1970s. As a result, tougher-than-expected policies may now be required to return inflation to its target – which could lead to a “difficult landing”.
As the debt of emerging and developing economies is at its peak for decades, “the concomitant rise in global lending costs and the devaluation of the exchange rate may provoke financial crises, as it did in the early 1980s,” the World Bank wrote.
According to the organization’s report, the US economy is likely to expand by 2.5% this year, 1.2 percentage points below the previous forecast. The World Bank has cut China’s economic growth forecast to 4.3% this year due to larger-than-expected damage due to the corona and its closures.
In the eurozone, growth is expected to be 2.5% – 1.7 percentage points less than in January’s forecast. According to the report, Ukraine’s economy will shrink by 45.1% this year, while Russia’s economy will fall by 8.9%.