The World Bank on Tuesday reduced its global growth forecast for the year 2022 to 2.9% in its Global Economic Prospects Report for June. The rate was lowered from 4.1% anticipated in January, further warning of a 1970-like economic meltdown as many countries could potentially fall into recession. The growth is expected to hang at the level throughout the next fiscal year, the Washington-based bank said, flagging looming risks of large-scale stagflation for middle and low-income countries.

“Global growth is expected to slump from 5.7 percent in 2021 to 2.9 percent in 2022— significantly lower than the 4.1 percent that was anticipated in January. It is expected to hover around that pace over 2023-24,” the World Bank said in its June 2022 report.

The financial experts said that the sharp drop in the rate in the weak economic situation could raise 1970’s-like intense inflation. In its “first systematic” comparison between the situation now and 50 years ago, the experts noted that the global leading economies could see a prolonged period of stagflation. For context, stagflation is a situation where an economy faces stagnant high prices, mostly due to oil shock as well as negative economic growth.

Slowing growth and rising inflation is raising the risk of stagflation, with potentially harmful consequences for middle- and low-income economies alike. World Bank Prospects Group Director, Ayhan Kose shares the latest economic forecasts #WBGEP2022 — World Bank (@WorldBank) June 7, 2022

War in Ukraine contributes to 50yr-worst economic situation

The World Bank in its report stated that the global economic slug has been a result of the Russian invasion of Ukraine, leading to an unprecedented surge in commodity prices. The situation escalated with the existing COVID-19 pandemic-induced supply chain bottlenecks. The compounded issues have now transpired into what World Bank chief David Malpass described as “a protracted period of feeble growth and elevated inflation.” He clearly outlined, “the war in Ukraine, lockdowns in China, supply-chain disruptions and risk of stagflation are hammering growth.”

“For many countries, the recession will be hard to avoid,” World Bank President David Malpass said.

Russian war triggers ‘largest economic shock’: World Bank

The burgeoning Ukraine war will eventually lead to a massive “commodity shock” seen since the 1970s, World Bank said in its analysis in April, noting the economic development under the Russian invasion. In the worrisome forecast, the apex financial body also warned that the escalation of the conflict could also lead to peaking prices of food and energy for the next three years, which will mostly impact the low-income households since their large part of earnings is spent on such purchases. The persistent high commodity prices could last up to 2024 gradually leading to stagflation- a situation where the economic growth rate is slower due to inflation and unemployment remains steadily high.

(Image: AP)