The World Bank warns most countries on the verge of recession

The World Bank warns most countries on the verge of recession

Most countries will have a hard time avoiding a complete recession in the coming months as Russia’s invasion of Ukraine, shutdowns in China and ongoing supply chain problems disrupt activity and trade and accommodating monetary policy are withdrawn, the World Bank has warned.

The Washington-based institution said the war in Ukraine had exacerbated the damage caused by the pandemic and “intensified” a global slowdown. It warned that the global economy could enter a “protracted period of weak growth and rising inflation” similar to the period of stagflation in the 1970s.

In its latest Global Economic Prospects report, the Bank delivered one of its gloomiest assessments of the global economy in several years.

Global growth is expected to fall from 5.7 percent in 2021 to 2.9 percent in 2022 – significantly lower than 4.1 percent that the World Bank expected in January. It is expected to “hover around that pace over 2023-24”, as the war in Ukraine disrupts activity, investment and trade in the short term, pent-up demand declines and fiscal and monetary policy adjustment is withdrawn. The bank noted that the per capita income level in developing economies this year would be almost 5 percent below the pre-pandemic trend.

“The war in Ukraine, shutdowns in China, supply chain disruptions and the risk of stagflation are hampering growth. For many countries, the recession will be difficult to avoid,” said World Bank President David Malpass.. “Markets are looking ahead, so it is important to encourage production and avoid trade restrictions. Changes in fiscal, monetary, climate and debt policies are needed to counteract the misallocation of capital and inequality, ”he said.

In its report, the bank provides the first systematic assessment of how the current global economic conditions compare with stagflation in the 1970s.

It said that the current time is similar to the 1970s in three key respects: “persistent supply-side disturbances fueling inflation, preceded by a protracted period of highly accommodative monetary policy in large advanced economies, prospects for weakened growth and vulnerabilities to emerging markets and emerging economies” monetary tightening that will be needed to curb inflation. “

The current period also differs from the 1970s in several aspects: the dollar is strong, the jump in commodity prices is smaller and the balance sheets of large financial institutions are generally strong.

“More importantly, unlike the 1970s, central banks in advanced economies and many developing economies now have clear mandates for price stability, and over the past three decades they have established a credible track record of achieving their inflation targets,” it said.

Nevertheless, it warned that interest rate hikes required 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 markets and developing economies.

The bank said that the war in Ukraine had led to an increase in the prices of a wide range of energy-related raw materials. Higher energy prices will lower real incomes, raise production costs, tighten financial conditions and limit macroeconomic policies, especially in energy-importing countries, it says.

Decisive global and national policies were needed to avert the worst consequences of the war in Ukraine for the global economy.

A turbulent recovery for tourism and air travel

“This will involve global efforts to limit the damage to those affected by the war, to curb the blow from rising oil and food prices, to accelerate debt relief and to increase vaccinations in low-income countries. It will also involve strong supply reactions at national level while The global commodity markets are functioning well, it is said, and although global inflation is expected to slow down next year, it is likely to remain above the inflation target in many economies.

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