The World Bank has stated that global growth is expected to slump from 5.7 percent in 2021 to 2.9 percent in 2022—significantly lower than 4.1 percent that was anticipated in January.
In its latest Global Economic Prospects report, the Bank noted that compounding the damage from the COVID-19 pandemic, the Russian invasion of Ukraine has magnified the slowdown in the global economy, which is entering what could become a protracted period of feeble growth and elevated inflation.
The June report offers the first systematic assessment of how current global economic conditions compare with the stagflation of the 1970s—with a particular emphasis on how stagflation could affect emerging markets and developing economies.
According to the Bretton Woods institute, the situation raises the risk of stagflation, with potentially harmful consequences for middle-and low-income economies alike.
It is expected to hover around that pace over 2023-24, as the war in
Ukraine disrupts activity, investment, and trade in the near term, pent-up demand fades, and fiscal and monetary policy accommodation is withdrawn.
As a result of the damage from the pandemic and the war, the level of per capita income in developing economies this year will be nearly 5 percent below its pre-pandemic trend.
“The war in Ukraine, lockdowns in China, supply-chain disruptions, and the risk of stagflation are hammering growth. For many countries, recession will be hard to avoid.
“Markets look forward, so it is urgent to encourage production and avoid trade restrictions. Changes in fiscal, monetary, climate and debt policy are needed to counter capital misallocation and inequality,” said World Bank Group President David Malpass.
To recover from the stagflation of the 1970s, the global lender said, requires steep increases in interest rates in major advanced economies, which played a prominent role in triggering a string of financial crises in emerging markets and developing economies.
