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World Bank Sees Most Countries Slide into Recession in 2022

World Bank Sees Most Countries Slide into Recession in 2022

…As inflation stays high

The future of the world economy looks much worse than it did just months ago, and most countries will have a hard time avoiding downturns (recession) in the near future, according to a new report from the World Bank.

The global economy entered 2022 with a healthy tailwind. Vaccine rollouts and nationwide reopenings unleashed a wave of spending and extraordinary economic growth last year. That boost has now faded, and new pressures are hampering growth around the world. The Russian invasion of Ukraine exacerbated inflation for key goods like gasoline and food. Supply-chain snags continue to disrupt global trade. Lockdowns in China risk throwing the manufacturing sector into a new tangle.

Those factors all led the World Bank to lower its forecast for 2022 global growth. The organization now sees the world economy expanding 2.9% through the year, down from the 4.1% forecasted in January and the 5.7% gain seen through last year.

“For many countries, a recession will be hard to avoid,” David Malpass, president of the World Bank, said in the Tuesday report.

Among the biggest risks to the recovery is stagflation, he added. The term references periods of weak economic growth and persistently high inflation. The US last dealt with the phenomenon in the 1970s, and the high-interest rates needed to cool inflation posed massive economic hardships for Americans.

Stagflation could reverse much of the progress made over the past two years, particularly if it emerges on a global scale.

“With inflation now running at multidecade highs in many countries and supply expected to grow slowly, there is a risk that inflation will remain higher for longer than currently anticipated,” Malpass said, adding that “subdued growth” will likely last throughout the 2020s.

While the global outlook looks dim, the US economy continues to show signs of strength. The May jobs report offered an encouraging sign for the US economy, with the country adding a better-than-expected 390,000 payrolls last month despite rising interest rates. There”doesn’t really seem to be strong economic evidence” that the US recovery is slowing “dramatically,” Daniel Zhao, a senior economist at Glassdoor, told Insider.

Former Goldman Sachs CEO Lloyd Blankfein said in a Friday tweet that people should “dial back a bit of the negativity on the economic outlook,” reversing course from more bearish statements made just weeks prior.

Also Read: FG Hinges Nigeria’s Exit from Recession on ESP Performance

Still, a resilient US economy won’t shield the rest of the world from a recession. Developing countries are the most exposed to downturn risks. The war in Ukraine is already slamming countries unable to pay for pricier energy and food. External public debt in developing countries also stands at record highs. As central banks rush to cool inflation with interest rate hikes, that debt will put serious pressure on emerging economies and could even spill over into middle-income nations.

Avoiding such an outcome will require policy action in five areas, Malpass said. Governments should limit the harm to those affected by the invasion of Ukraine through immediate aid and long-term relocation support. Boosting the supply of oil and food can calm some inflationary pressures, as can speeding up the transition to sustainable energy. Policymakers should also improve public health efforts to stem the spread of COVID-19 and step up debt relief efforts to help low-income countries bridge the period of weaker growth.

“There is good reason to expect that, once the war in Ukraine stops, efforts will redouble including by the World Bank Group to rebuild the Ukrainian economy and revive global growth,” Malpass said. “In the meantime, policymakers everywhere must fight the world’s other development crises.”


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