The World Bank has warned that countries around the world are facing recession as the Russian-Ukraine war hits economies already rocked by the COVID-19 pandemic.
President of the World Bank, David Malpass, disclosed that less developed countries in Europe and East Asia face a “major recession”, pointing out that the risk of high inflation and low growth, so-called “stagflation”, is also higher.
Energy and food bills keep rising around the world. According to Mr. Malpass, “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”. He also warned in the World Bank’s Global Economic Prospects report for June 2022, that the danger of stagflation is “considerable”.
“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.”
President of the World Bank, David Malpass
Additional Funding for Ukraine
On Tuesday, June 7, 2022, the World Bank approved $1.49bn (£1.2bn) of additional funding for Ukraine, which it said “will be used to pay for wages for government and social workers”.
The new financing is part of an amount more than $4bn support package for the country, which covers areas including healthcare, education and sanitation. The World Bank’s forecast also noted that the countries in Europe that are most likely to suffer a sharp drop in economic output in 2022 are Ukraine and Russia.
However, it warned that the fallout from the war and the COVID-19 pandemic would be wider. “Even if a global recession is averted, the pain of stagflation could persist for several years – unless major supply increases are set in motion”, Mr. Malpass intimated.
Global Growth Projection
Mr. Malpass said between 2021 and 2024, global growth is projected to slow by 2.7 percentage points, which is more than twice the slow down seen between 1976 and 1979, reportedly indicating a time the world last saw stagflation.
The report further warned that interest rate increases needed 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 markets and developing economies. However, in the 1970s the dollar was weaker and oil was relatively more expensive.
Speaking to the media in an interview, Ayhan Kose, Director of the World Bank’s Prospects Group said “There are not many governments can easily do” to tackle rising energy prices. According to Mr. Kose, “They shouldn’t introduce export bans, they shouldn’t introduce subsidies, they shouldn’t introduce price controls”. He also added that “Those types of interventions distort prices and they translate into even higher prices”.
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