by Andrea Shalal
WASHINGTON (Reuters) – The World Bank said on Tuesday it had cut its global growth forecast for this year by 1.2 percentage points, to 2.9%, and warned that Russia’s invasion of Ukraine, in adding to the damage caused by the COVID-19 pandemic, threatened many countries with a recession.
The outbreak of the conflict in Ukraine has amplified the slowdown in the global economy, which is now entering what could be “a prolonged period of low growth and high inflation”, explains the international institution in the new edition of its Outlook global economies.
For 2023 and 2024, it is thus counting on global growth without much change compared to that of this year and on inflation that is admittedly lower but still above the objectives in many countries.
Its chairman, David Malpass, said the growth of economic activity was suffering from a combination of war, recent lockdowns in China, strains in supply chains and the risk of “stagflation”, a situation combining growth low and high inflation that the world has not seen since the 1970s.
“The risk of stagflation today is considerable,” he wrote in the introduction to the report. “Contained growth is likely to persist through the end of the decade due to weak investment across much of the world.”
“With inflation currently hovering at multi-decade highs in many countries and supply expected to grow slowly, there is a risk that inflation will stay higher for longer,” he added. .
In total, global growth is expected to decline by 2.7 percentage points over the period 2021-2024, more than twice the deceleration experienced between 1976 and 1979, he specifies.
EMERGING AND DEVELOPING COUNTRIES MORE AFFECTED
The World Bank report also recalls that the interest rate hikes decided at the end of the 1970s to curb inflation had been at the origin of the world recession of 1982 and of a series of financial crises in emerging and developing countries.
While the current situation has similarities to that of then, it also offers important differences, including the strength of the US dollar and relatively weaker oil prices, as well as generally stronger balance sheets of major financial institutions.
To reduce the risks, adds the World Bank, the political and economic authorities must coordinate aid to Ukraine, counter the rise in the prices of hydrocarbons and food products, step up the relief of public debts, step up the fight against COVID-19 and accelerate the transition to a “low carbon” economy, continues David Malpass.
In advanced countries, growth is expected to decelerate sharply, to 2.6% this year and 2.2% in 2023 after 5.1% in 2021.
That of emerging and developing countries should not exceed 3.4% in 2022 after 6.6% last year and an annual average of 4.8% over the period 2011-2019.
For commodity-exporting countries, the fallout from the war in Ukraine should more than overshadow the positive effects of the rise in world prices: growth forecasts for 2022 have been revised downwards for nearly 70% of emerging economies and development.
Ukraine should see its activity fall by 45.1% this year, Russia by 8.9%, specifies the World Bank.
(Report Andrea Shalal, French version Marc Angrand, edited by Kate Entringer)