The Strategist

WorldBank warns of stagflation risks

06/08/2022 - 07:49

The World Bank (WB) has downgraded its global economic growth forecast for this year from 4.1 percent to 2.9 percent. The World Bank specialists point out the negative implications of the situation in Ukraine, as well as chances of global inflation continuing to rise.

Prices are expected to peak in the middle of this year, then remain at their present high level for the rest of the year. In such circumstances, the world economy faces the possibility of stagflation, as happened in the 1970s, when rising oil prices and galloping inflation necessitated a sharp tightening of central bank policy, which resulted in a significant slowdown in economic development, according to the World Bank.

According to the World Bank's latest macro estimate, global growth will decelerate this year to 2.9 percent, down from 5.7 percent in 2021. The World Bank predicted global growth of 4.1 percent in January. Global GDP growth is expected to be similarly modest in 2023 and 2024, at 3% each.

In addition to the global downturn, the bank warns about dangers of stagflation, or excessive inflation at low growth rates. "Inflation has increased sharply from the lows seen in mid-2020," the World Bank notes, "while global growth, on the other hand, is trending in the opposite direction and will be lower by the end of the decade than it was in the 2010s."