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The World Bank on Tuesday slashed its global growth forecast for this year, due to the war in Ukraine.

The Washington institution warns of the risk of “stagflation”, that is, of a “prolonged period of low growth and high inflation”, especially for low-income countries, and now forecasts an increase in world gross domestic product of 2.9 %, compared to a previous forecast of 4.1% published in January.

“The global economy is expected to experience its biggest slowdown after a recovery … in more than 80 years,” the World Bank said in its report on the global economic outlook on Tuesday. “The result is a growing risk of stagflation,” he warned.

This slowdown comes after a sustained economic recovery last year (+5.7%), following the deep recession caused by the Covid-19 pandemic.

“In addition to the damage caused by the Covid-19 pandemic, the Russian invasion of Ukraine has accentuated the slowdown in the world economy,” summarizes the Bank in a press release.

And the “increasing” risk of stagflation would have “harmful consequences” for both low-income and middle-income countries.

World Bank economists expect this rate of growth to continue through 2023-2024, with the war in Ukraine severely affecting activity, investment and trade in the short term. This comes on top of weakening demand and the gradual lifting of government aid measures.

“Due to the combined damage of the pandemic and the war, the level of per capita income in developing countries will be almost 5% lower this year than the trend that had been projected before Covid,” the institution also regrets in a statement. . .

recession on the horizon

“For many countries, it will be difficult to escape recession,” World Bank President David Malpass said.

It urges the avoidance of trade restrictions, while recommending changes in fiscal, monetary, climate and debt policies (…) “to address the misallocation of capital” and combat inequality.

The World Bank has revised downward the growth forecasts of many economies, starting with the two big ones: the United States (+2.5%), with a drop of 1.2 percentage points, and China (+4.3%). ) with -0.8 points.

For the euro zone, the revision is even stronger: -1.7 points to 2.5%.

On the other hand, growth in the Middle East and North Africa region (+0.9 points, to 5.3%) was revised upwards, the latter benefiting from higher oil prices (+42% expected this year).

In its report, the Washington institution also offers the first comparison of current global economic conditions with the stagflation of the 1970s.

Economists assessed in particular how stagflation could affect emerging market and developing economies.

They note that the current situation is comparable to that of the 1970s in three respects: “persistent supply disruptions that fuel inflation, preceded by a prolonged period of very accommodative monetary policy in major advanced economies; slow growth in projections ; emerging and developing economies vulnerable to the need for tighter monetary policy to control inflation”.

However, there are important distinctions as the dollar is strong while at the time it was very weak. In addition, the magnitude of commodity price increases is more moderate and the balance sheets of major financial institutions “are generally strong.”

“More importantly, and unlike in the 1970s, central banks in advanced economies and many developing economies now have clear mandates for price stability,” the economists note.

The World Bank finally anticipates a slowdown in inflation next year, while remaining “probably” above established targets in many countries.

If inflation remains high, a repetition of the solutions adopted during the previous stagflation could result in a strong global recession, as well as financial crises in some emerging and developing economies.

This article has been published automatically. Sources: ats/awp/afp

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