World Bank Warns Of 1970s-Style Stagflation
On Tuesday, the World Bank slashed its global growth forecast and warned that many countries may fall into recession as the global economy slips into a period of 1970s-style stagflation.
In its most recent Global Economic Prospects report, the World Bank said it expects global economic expansion to drop to 2.9% this year from 5.7% in 2021. This is 1.2 percentage points lower than the 4.1% predicted in January.
The report then predicts growth to maintain this level from 2023 to 2024 while inflation remains above target for most countries, which points to stagflation risks.
“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,” World Bank President David Malpass commented.
According to the report, growth in advanced economies will likely drop sharply to 2.6% in 2022 from 5.1% in 2021.
Meanwhile, expansion in emerging markets and developing economies is expected to drop to 3.4% in 2022 from 6.6% in 2021.
“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,” Malpass said.