The World Bank on Tuesday slashed its global growth forecast and warned that many countries could fall into recession as the economy slips into a period of stagflation reminiscent of the 1970s.Global economic expansion is expected to drop to 2.9% this year from 5.7% in 2021 — 1.2 percentage points lower than the 4.1% predicted in January, the Washington-based bank said in its latest Global Economic Prospects report.
Growth is expected to then hover around that level through 2023 to 2024 while inflation remains above target in most economies, the report said, pointing to stagflation risks.
Russia’s invasion of Ukraine and the resultant surge in commodity prices have compounded existing Covid pandemic-induced damage to the global economy, which the World Bank said is now entering what may be “a protracted period of feeble growth and elevated inflation.”
“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 said.
Growth in advanced economies is projected to decelerate sharply to 2.6% in 2022 from 5.1% in 2021 before further moderating to 2.2% in 2023, the report said.
Expansion in emerging market and developing economies, meanwhile, is projected to fall to 3.4% in 2022 from 6.6% in 2021, well below the annual average of 4.8% from 2011 to 2019.
That as inflation continues to climb in both advanced and developing economies, prompting central banks to tighten monetary policy and raise interest rates to curb soaring prices.
1970s-style stagflationThe present high-inflation, weak growth environment has drawn parallels with the 1970s, a period of intense stagflation which required steep increases in interest rates in advanced economies and triggered a string of financial crises in emerging market and developing economies.
The World Bank’s June report offers what it calls the “first systematic” comparison between the situation now and that of 50 years ago.
Clear parallels exist between then and now, it said. Those include supply side disturbances, prospects for weakening growth, and the vulnerabilities emerging economies face with respect to the monetary policy tightening that will be needed to rein in inflation.
However, there are now also a number of differences, such as the strength of the U.S. dollar, generally lower oil prices, and broadly strong balance sheets at major financial institutions, which present room for maneuver.
To reduce the risks of history repeating itself, the World Bank urged policymakers to coordinate aid for Ukraine, counter the spike in oil and food prices, and set up debt relief for developing economies.
https://www.cnbc.com/2022/06/07/world-bank-cuts-global-growth-outlook-and-warns-of-70s-stagflation.html ....
More economic doom and gloom. It seems that big economic crisis are like the alien clown from Stephen King's IT. They return every 50 or so years to wreak havoc among the living. After a period of years they may eventually return to hibernation, only to return in another 50 year cycle.
I think this is the first article I have seen which considered the possibility of the crisis being a global one. This could parallel the crisis of 2008, the falllout of which provided motivation for Satoshi Nakamoto to create bitcoin. While the harsh realities of economic crisis are terrible to behold. Perhaps we will witness similar trends where people invent and create new platforms like bitcoin in an effort to buck the trend and give people new options and tools to help them stave off the next economic crisis down the line. There could be a positive aspect to it which will provide opportunities to early adopters, the way that
BTC did.
The recent TV series Mr Robot proposed deleting all bank records in an electronic attack in order to force a financial system reset which enabled some degree of debt forgiveness. While this approach may not be feasible, I hope someone has a good idea for how to prevent future economic tragedy that they can implement to better society.
