The global economy is facing a prolonged period of weak growth and high inflation reminiscent of the 1970s, as the impact of a two-year pandemic is exacerbated by Russia’s invasion of Ukraine. the World Bank has warned.
In its half-yearly economic health check, the Washington-based Bank said the echoes of the stagnation of four decades ago had forced it to reduce its growth forecast for this year from 4.1% to 2 , 9%.
Bank President David Malpass said: “The war in Ukraine, the confinements in China, supply chain disruptions and the risk of stagnation are hitting growth. For many countries, the recession will be difficult. ‘avoid”.
The Bank said its Global Economic Outlook (GEP) report was the first systematic attempt to compare the current state of the world economy with the staggering state of the 1970s.
He said that the slowdown in growth between 2021 and 2024 would be double that of the period between 1976 and 1979, and added that the recovery from high inflation that followed the oil shocks of the mid and late 1970s was require a sharp rise in interest rates in the west. These played a key role in triggering a series of financial crises in emerging and developing market economies, he added.
While both rich and poor countries would be affected by the slowdown in growth, the World Bank said emerging and developing market economies were the most vulnerable. He said the level of per capita income in developing countries in 2022 would be 5% below its pre-pandemic trend.
The Bank pledged $ 12 billion (£ 9.6 billion) last month to support low-income countries affected by the loss of food and fertilizer caused by the invasion of Russia and used the GEP to call for action. “decisive” global and national policy to avoid the worst consequences. of the Ukrainian war for the global economy. This would require efforts to mitigate the impact of rising energy and food prices, accelerate debt relief and expand vaccination programs in low-income countries.
The Bank said that after halving 5.7% in 2021, growth would remain at 3% in both 2023 and 2024, as the war affected investment and trade, with accumulated demand for the pandemic faded and political support withdrew.
The report said growth in advanced economies would decline from 5.1% to 2.6% this year, while growth in emerging and developing countries would fall from 6.6% to 3.4%.
Sign up for your Daily Business Today email or follow Guardian Business on Twitter at @BusinessDesk
In his prologue to the GEP, Malpass said moderate growth is likely to persist during the 2020s due to weak investment in most parts of the world.
“Just over two years after the Covid-19 caused the deepest global recession since World War II, the world economy is once again in jeopardy. This time it is facing high inflation and slow growth. “Even if a global recession is averted, the pain of stagnation could persist for several years, unless large supply increases are set in motion.”
“In the midst of Ukraine’s war, rising inflation and rising interest rates, global economic growth is expected to slow in 2022. It is now likely that there will be several years of inflation above “Growth and below-average growth, with potentially destabilizing consequences for low- and middle-income levels.” “Income savings.