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STAGFLATION DANGER SEES WORLD BANK CUT GLOBAL GROWTH OUTLOOK

 * Pain of high inflation, slow growth could persist for years
 * Lender reduces 2022 economic growth forecast to 2.9%

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World Bank's Malpass: Many Nations to Have Difficulty Dodging Recession
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World Bank's Malpass: Many Nations to Have Difficulty Dodging Recession
By

Ana Monteiro and

Eric Martin

+Follow
June 7, 2022, 1:30 PM GMTUpdated onJune 7, 2022, 3:19 PM GMT


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The World Bank cut its forecast for global economic expansion in 2022 further,
warning that several years of above-average inflation and below-average growth
lie ahead with potentially destabilizing consequences for low- and middle-income
economies. 

“The world economy is again in danger,” President David Malpass said in the
foreword of the latest edition of the lender’s Global Economic Prospects report
released Tuesday. “It is facing high inflation and slow growth at the same time.
Even if a global recession is averted, the pain of stagflation could persist for
several years -- unless major supply increases are set in motion.” 


DANGERS LURK

World Bank cuts global economic expansion forecast for 2022 and 2023



Source: World Bank



The Washington-based lender reduced its estimate for global growth this year to
2.9% from a January prediction of 4.1% and April’s 3.2% estimate due to a surge
in energy and food prices, supply disruptions triggered by Russia’s invasion of
Ukraine and a drive by central banks globally to increase interest rates from
rock-bottom levels. 




The world economy expanded 5.7% in 2021 after the Covid-19 pandemic triggered
the deepest global recession since World War II. 



“For many countries, recession will be hard to avoid,” Malpass said, adding that
the adverse shocks of the past two years mean real income per capita will remain
below pre-Covid-19 levels in about 40% of developing economies in 2023.


SCALING BACK

The World Bank predicts global economic growth of 2.9%



Source: World Bank

Note: Map shows forecast annual GDP change, in percentage terms, for distinct
economies in 2022

Central banks are battling a worse-than-anticipated inflation surge spurred by
disruptions in the supply of goods, energy and food amid lockdowns in key
production hubs in China and the war in Ukraine. More than 60 monetary
authorities -- including the Bank of England and the Federal Reserve -- have
raised interest rates this year, and the European Central Bank may start within
months. 




Accelerating inflation and slowing growth have raised World Bank officials’
concerns that the global economy is entering a period of stagflation reminiscent
of the 1970s. As a result, a steeper-than-anticipated policy tightening may now
again be required to return inflation to target -- and this might trigger a hard
landing.  

Read more: 
 * World Bank Cuts 2022 Global Growth Outlook on Russia Invasion
 * Guardians of World Economy Raise Debt Alarm as Options Vanish
 * Malpass Calls for New Debt-Resolution Process Amid China Worries
 * Why War and Its Oil Impact Revive Stagflation Fears: QuickTake

With emerging and developing economies’ debt at multi-decade highs, “the
associated rise in global borrowing costs and exchange-rate depreciations may
trigger financial crises, as it did in the early 1980s,” the World Bank said.   




About 60% of the world’s 75 poorest countries are in or at risk of debt
distress, and this is spreading to middle-income countries, Malpass said in an
interview on Bloomberg Television. 

China is the biggest creditor, and the contracts are written with collateral and
non-disclosure clauses, which makes it “hard to engage the conversation,” he
said, adding that the bank is working to “find ways to restructure the debt and
have it be more transparent.” 

Here are some highlights from the report: 

 * The US economy will likely expand 2.5% in 2022, 1.2 percentage points below
   the prior projection due to higher energy prices, tighter financial
   conditions, and additional supply disruptions caused by the invasion of
   Ukraine.
 * The bank cut the outlook for China’s economic expansion to 4.3% this year due
   to larger-than-expected damage from Covid-19 and related lockdowns.
 * Euro-area growth is projected to slow to 2.5%, 1.7 percentage points less
   than seen in January.
 * Ukraine’s economy is set to shrink 45.1% this year, while Russia’s may drop
   8.9%. The lender had forecast expansion for both previously.

— With assistance by Jonathan Ferro

(Updates with comment from Malpass’s television interview in ninth paragraph.)




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