MNI:World Bank Slices Global Growth Call, Warns of Stagflation

The World Bank slashed its global growth forecast by nearly a third and warned of 1970s-style stagflation and recession as central banks raise interest rates.

“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 Group President David Malpass. “Changes in fiscal, monetary, climate and debt policy are needed to counter capital misallocation and inequality.”

Global growth this year was reduced 1.2pp to 2.9% this year, by 0.2pp next year to 3.0%, and there could be “a protracted period of feeble growth,” the World Bank said.

“Global inflation is expected to moderate next year but it will likely remain above inflation targets in many economies,” the World Bank’s press release said. “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.”

While persistent supply disruptions and low interest rates resemble the 1970s, today is also different because of a relatively much stronger U.S. dollar, smaller jumps in commodity prices and central banks with a better track record of curbing inflation, the World Bank said.