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The World Bank is ringing the bell of stagnant inflation – Reduce the forecast for global growth

The World Bank cut its global growth forecast by 1.2 percentage points to 2.9% in 2022 on Tuesday, warning that Russia’s invasion of Ukraine has exacerbated damage from the COVID-19 pandemic, with many countries be likely to experience recession.

Russia’s invasion of Ukraine has exacerbated the slowdown in the global economy, which is now entering a “prolonged period of weak growth and rising inflation,” the World Bank said in a report on the World Economic Outlook.

World Bank President David Malpa said global growth had been hit by war, new COVID-19 lockdowns in China, global supply chain turmoil and the risk of stagnation, a period of weak growth and high inflation observed recently. in the 1970s.

“The risk of stagnant inflation is significant today,” Malpas wrote in the report’s preface. “Growth is likely to remain subdued throughout the decade due to weak investment in most of the world. With inflation now running at decades high in many countries and supply expected to grow slowly, there is a risk of inflation to remain higher for a longer period of time “.

Between 2021 and 2024, global growth is projected to slow by 2.7 percentage points, Malpas said, more than double the slowdown seen between 1976 and 1979.

The report warned that the rate hikes needed to control inflation in the late 1970s were so sharp that they caused a global recession in 1982 and a series of financial crises in emerging markets and emerging economies.

Although there are similarities with the situation then, there are also significant differences, such as the strength of the US dollar and generally lower oil prices, as well as generally strong balance sheets in large financial institutions.

To reduce the risks, policymakers will have to work to coordinate aid to Ukraine, tackle the sharp rise in oil and food prices, step up debt relief, step up efforts to reduce COVID-19 and accelerate the transition to a low-carbon economy, Malpas said.

The bank forecast global growth to fall to 2.9% in 2022 from 5.7% in 2021, with growth hovering close to this level in 2023 and 2024. It said global inflation would moderate next year, but will likely remain above targets in many economies.

Growth in advanced economies was expected to slow rapidly to 2.6% in 2022 and 2.2% in 2023, after reaching 5.1% in 2021.

Emerging markets and emerging economies grew by just 3.4% in 2022, from 6.6% in 2021 and well below the annual average of 4.8% observed in 2011-2019.

The regional economy of Europe and Central Asia, which does not include Western Europe, was expected to shrink by 2.9% after growing by 6.5% in 2021, recording a slight recovery in growth of 1.5% in 2023. The economy Ukraine was expected to shrink by 45.1% and Russia by 8.9%.

Growth was expected to slow sharply in Latin America and the Caribbean, reaching just 2.5% this year and slowing further to 1.9% in 2023, the bank said.

The Middle East and North Africa will benefit from rising oil prices, with growth reaching 5.3% in 2022 before slowing to 3.6% in 2023, while South Asia will grow 6.8% this year and 5.8% in 2023.

Growth in sub-Saharan Africa was expected to slow slightly to 3.7% in 2022 from 4.2% in 2021, the bank said.

Source: Capital

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