World bank issues dire economic warning, hints at 1970s-era stagflation

Thomas Catenacci, DCNF

The World Bank cut its global growth forecast Tuesday and warned that the world economy could enter a period of feeble growth and elevated inflation.

Global growth is now projected to decline from its 2021 rate of 5.7% to a lowly 2.9% in 2022, a downward revision from the 4.1% growth it forecasted five months ago, according to the World Bank’s Global Economic Prospects report published Tuesday. The World Bank report further projected growth to remain low through 2023 and 2024 as a result of Russia’s invasion of Ukraine, which has disrupted a wide range of global economic activity.

“The war in Ukraine, lockdowns in China, supply-chain disruptions, and the risk of stagflation are hammering growth. For many countries, recession will be hard to avoid,” World Bank President David Malpass said in a statement. “Markets look forward, so it is urgent to encourage production and avoid trade restrictions. Changes in fiscal, monetary, climate and debt policy are needed to counter capital misallocation and inequality.”

The World Bank also warned the current condition of the global economy “resembles” its economic condition in the 1970s when stagflation ran rampant in the U.S. and worldwide. The organization said, like the 1970s, there are persistent supply disturbances increasing consumer prices, prospects for weakening growth and vulnerabilities in developing economies.

Stagflation occurs when inflation continues increasing as growth declines and unemployment rises, according to consumer financial services firm Bankrate.

“Global inflation is expected to moderate next year but it will likely remain above inflation targets in many economies,” the World Bank said in a release Tuesday. “The report notes that if inflation remains elevated, a repeat of the resolution of the earlier stagflation episode could translate into a sharp global downturn along with financial crises in some emerging market and developing economies.”

The economic downturn is expected to impact both advanced and developing nations, the report added.

The World Bank is a key global financial institution based in Washington, D.C., that focuses on increasing “shared prosperity and promoting sustainable development.”

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