The World Bank has downgraded its outlook for the global economy, highlighting Russia’s war against Ukraine, the prospect of food shortages, and fears of the possible return of “stagflation,” a toxic mix of high inflation and low growth that is not seen for four decades.
On Tuesday, the 189-member country anti-poverty agency forecast that the world economy will grow 2.9% this year, compared with 5.7% globally in 2021 and 4.1% forecast for 2022 in January.
“For many countries, recession will be difficult to avoid,” said World Bank President David Malpass.
The bank does not foresee a better outlook for 2023 and 2024: it forecasts 3% global growth for the two years.
For the United States, the World Bank has reduced its growth forecast to 2.5% this year after 5.7% in 2021 and 3.7% forecast in January. For the 19 European countries that use the euro, he lowered the forecast to 2.5% this year from 5.4% last year and 4.2% expected in January.
In China, the world’s second-largest economy after the United States, the World Bank forecasts growth of 4.3%, compared to 8.1% last year. China’s zero COVID policy, involving draconian lockdowns in Shanghai and other cities, has brought economic activity to a standstill. The Chinese government provides aid to alleviate the situation.
Emerging markets and developing countries are forecast to grow 3.4% in the year, compared to 6.6% in 2021.
The Russian invasion of Ukraine has severely disrupted the global trade in energy and wheat, hitting a global economy recovering strongly from the coronavirus pandemic. As a result, already high commodity prices have risen further, threatening the availability of affordable food in developing countries.
“There is a serious risk of malnutrition, of increasing hunger and even famine,” Malpass warned.
The World Bank forecasts that oil prices will increase 42% this year and that non-energy raw materials will grow by almost 18%. Instead, he estimates that the costs of oil and other raw materials will fall 8% in 2023. He compared the current increase in energy and food prices with the oil shock of the 1970s.