<mediadc-video-embed data-state="{"cms.site.owner":{"_ref":"00000161-3486-d333-a9e9-76c6fbf30000","_type":"00000161-3461-dd66-ab67-fd6b93390000"},"cms.content.publishDate":1654624532802,"cms.content.publishUser":{"_ref":"00000168-ed7d-d9d9-a9ec-ff7daffb0002","_type":"00000161-3461-dd66-ab67-fd6b933a0007"},"cms.content.updateDate":1654624532802,"cms.content.updateUser":{"_ref":"00000168-ed7d-d9d9-a9ec-ff7daffb0002","_type":"00000161-3461-dd66-ab67-fd6b933a0007"},"rawHtml":"
$bp("Brid_54624525", {"id":"27789","width":"16","height":"9","video":"1027584"}); ","_id":"00000181-3f4e-df81-a381-7f7eb0350000","_type":"2f5a8339-a89a-3738-9cd2-3ddf0c8da574"}”>Video EmbedThe World Bank said that many countries across the world would struggle to prevent a recession this year as it pared down its global growth forecast.
Global growth is now expected to fall to 2.9%, a decrease of 1.2 percentage points from the previous forecast at the start of the year, the World Bank announced on Tuesday. The international financial institution said that alarm bells are flashing red for a “protracted period of feeble growth and elevated inflation.”
That growth, which is far less than the 5.7% experienced globally last year, is expected to remain around the 2.9% level throughout next year and 2024, the World Bank predicted on Tuesday. It additionally said that the level of per capita income in developing economies this year would be nearly 5% below pre-pandemic trends.
“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,” said World Bank President David Malpass.
YELLEN ACKNOWLEDGES ‘STAGFLATIONARY EFFECTS’ OF SOARING FOOD AND ENERGY PRICES
The World Bank report also raised the specter of stagflation in some countries. Stagflation, a portmanteau of stagnation and inflation, is when inflation is rising at the same time that economic growth and the labor market are struggling.
The term is often used to describe the U.S. economy of the 1970s, when both inflation and unemployment were high. At the time, many top economists thought such a situation was impossible, as it was believed that high inflation could be traded off for lower unemployment.
The World Bank said that the current economic environment resembles the stagflationary period during the 1970s in that inflation is being fueled by major supply chain disruptions and that global economic growth appears to be weakening. It also said developing economies are facing vulnerabilities from tightening monetary policy.
Still, the report points out that the dollar is much stronger than it was relative to the 1970s, when it was quite weak. It also noted that the percentage increase of commodity prices has been lower than during the 1970s stagflation and central banks across the world have more stringent price stability mandates.
Last month, Treasury Secretary Janet Yellen raised eyebrows when she invoked stagflation.
“The economic outlook globally is challenging and uncertain, and higher food and energy prices are having stagflationary effects, mainly depressing output and spending and raising inflation all around the world,” she said to reporters ahead of a G-7 finance ministers meeting in Germany.
Former Federal Reserve Chairman Ben Bernanke has also suggested that the United States might be in for a period of stagflation.
The World Bank report also points out that the war in Ukraine and its effect on global energy markets have weakened the world’s growth outlook. Higher energy prices have increased production costs while lowering real incomes, the World Bank said.
The U.S. oil benchmark, West Texas Intermediate crude futures, was pushing $118, a big increase from the $90 it was at before the war broke out. Additionally, Brent crude was above $119 per barrel, much higher than its $80 price around the start of the year.
Those oil prices are pushing gasoline prices ever higher, with the U.S. national average price for a gallon of gasoline on Tuesday sitting at a record $4.92 — an increase from the $4.30 level a month ago.
Higher energy costs are driving some of the inflationary pressure being felt across all sectors of the economy. U.S. inflation tracked by the consumer price index increased 8.3% for the 12 months ending in April.
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After years of ultraloose monetary policy, with interest rates at near zero, the Federal Reserve is now working to raise interest rates quickly in an effort to squelch the country’s spiraling inflation.
The central bank increased its interest rate target by a quarter of a percentage point in March and subsequently hiked rates by half a percentage point last month. The half-point hike is analogous to two simultaneous rate increases and shows that the central bank is growing increasingly concerned about inflation.
