The World Bank this afternoon significantly cut its growth forecasts for this year. 2022 will end with a rise of 2.9%, a figure that is almost half of what was marked in 2021 (5.7%) and that is much lower than the previous forecasts of this organization for the month of January (a 4 ,1%).
The Russian invasion of Ukraine has magnified the slowdown in the world economy, which is entering what could be a prolonged period of weak growth and high inflation.
The message is clear: there is no longer a mere risk of stagflation, but the current situation of rising prices and economic stagnation could last for several months. “For many countries, recession will be difficult to avoid,” World Bank President David Malpass has warned.
The institution tries to draw a parallel between the current situation and the one experienced in the seventies, when interest rates rose to 20%. In their analysis, similar elements stand out, such as the “persistent supply shocks that feed inflation, preceded by a prolonged period of very accommodative monetary policy in the main advanced economies” and the “prospects of weakening in emerging economies with respect to monetary policy tightening that will be necessary to curb inflation.
On the other hand, compared to 40 years ago, the World Bank perceives less energy dependence, a stronger dollar and greater credibility of central banks, which in theory should help get out of the doldrums without measures as drastic as then.
However, in one aspect the World Bank is especially severe: no changes are expected in the short term. “No improvement in global growth is expected next year as many headwinds – in particular, high commodity prices and continued monetary policy tightening – will persist.” In addition, they add the presence of negative factors such as “the intensification of geopolitical tensions, financial instability and the worsening of food insecurity”.
We are, therefore, facing a change of cycle rather than a passing storm. The institution chaired by David Malpass believes that “for the rest of this decade, growth is expected to remain below the average of the 2010s.” In closing, the World Bank closes with a warning-sounding historical analogy: “the recovery from the stagflation of the 1970s required sharp increases in interest rates by the major advanced economies to quell inflation, that triggered a global recession.
