World Bank Warns Of 1970s-style Economic Crisis

The customers are purchasing fresh chicken at Batu Lanchang wet market in Malaysia.
The customers are purchasing fresh chicken at Batu Lanchang wet market in Malaysia. (AFP)

The World Bank on Tuesday slashed its global growth forecast by nearly a third to 2.9% for 2022, warning that Russia’s invasion of Ukraine has compounded the damage from the pandemic, and many countries now faced recession.

The war in Ukraine had magnified the slowdown in the global economy, which was now entering what could become “a protracted period of feeble growth and elevated inflation", the World Bank concluded in its Global Economic Prospects report, warning that the outlook could still grow worse.

In a news conference, World Bank President David Malpass said global growth could fall to 2.1 per cent in 2022 and 1.5 per cent in 2023, driving per capita growth close to zero, if downside risks materialized.

Malpass said global growth was being hammered by the war, fresh pandemic lockdowns in Communist China, supply-chain disruptions and the rising risk of stagflation — a period of weak growth and high inflation last seen in the 1970s.

The stagflation projections are high

The danger of stagflation is considerable today, Mr. Malpass wrote in the foreword to the report. Subdued growth will likely persist throughout the decade because of weak investment in most of the world. With inflation now running at multi-decade highs in many countries and supply expected to grow slowly, there is a risk that inflation will remain higher for longer, he emphasised.

Between 2021 and 2024, the pace of global growth is projected to slow by 2.7 percentage points, Mr. Malpass said, more than twice the deceleration seen between 1976 and 1979.

The report warned that interest rate increases required to control inflation at the end of the 1970s were so steep that they touched off a global recession in 1982, and a string of financial crises in emerging market and developing economies.

Mr. Ayhan Kose, director of the World Bank unit that prepares the forecast, told reporters there was “a real threat” that faster than expected tightening of financial conditions could push some countries into the kind of debt crisis seen in the 1980s.

Australia's economic growth rate unchanged

The bank forecast a slump in global growth to 2.9 per cent in 2022 from 5.7 percent in 2021, a drop of 1.2 percentage points from its January forecast, and said growth was likely to hover near that level in 2023 and 2024.

It said global inflation should moderate next year but would likely remain above targets in many economies.

Growth in advanced economies was projected to decelerate sharply to 2.6 per cent in 2022 and 2.2 per cent in 2023 after hitting 5.1 per cent in 2021.

Emerging market and developing economies were seen achieving growth of just 3.4 per cent in 2022, down from 6.6 per cent. in 2021, and well below the annual average of 4.8 per cent. seen in 2011-2019.

But Australia's economic growth forecast did not change. This year the country's economy is projected to grow by 4.2 per cent.

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