The World Bank says most countries are headed for a recession, and warns of a possible return to 1970s ‘stagflation’
Investors, bankers, and entrepreneurs have been discussing the chances of a coming recession for months. Now the world’s premier international credit institution is joining the chorus that a recession is likely, and warns that something even worse might be on the horizon.
Global economic growth is expected to slow down before the end of the year, and most countries should begin preparing for a recession, according to the World Bank’s latest global economic forecast released on Tuesday.
“For many countries, recession will be hard to avoid,” wrote World Bank president David Malpass.
“Even if a global recession is averted, the pain of stagflation could persist for several years – unless major supply increases are set in motion,” Malpass said, BBC reported.
Between 2021 and 2024, global growth is projected to slow by 2.7 percentage points, Malpass said, more than twice the slow down seen between 1976 and 1979, when the world last saw stagflation, BBC reported.
The report warned that interest rate increases needed to control inflation at the end of the 1970s were so steep that they touched off a global recession in 1982, and a string of financial crises in emerging market and developing economies.
“Growth will also be supported by fixed investment undertaken by the private sector and by the government, which has introduced incentives and reforms to improve the business climate.
This forecast reflects a 1.2-percentage-point downward revision of growth from the January projection. Growth is expected to slow further to 7.1% in FY24 back towards its longer-run potential,” the World Bank said in its latest report.
In April, the World Bank had cut India’s growth estimate to 8% for FY23 from the earlier 8.7% due to the impact of supply chain disruptions and soaring inflation.
India’s economy has staged a sharp recovery from the impact of lockdowns that were imposed to prevent the spread of Covid but the war in Ukraine has dealt another blow, resulting in surging price pressures, which have prompted the RBI to raise interest rates sharply. The Indian economy grew 8.7% in FY22 after contracting 6.6% in the previous fiscal year.
The World Bank “is providing continuing support for Ukraine and its people in the face of the ongoing war,” bank President David Malpass said in a statement.
“We are working with donor countries to mobilize financial support and leveraging the flexibility of our various financing instruments to help provide Ukrainians with access to health services, education, and social protection.”
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