World Bank cuts growth forecast and warns of stagflation risk

The World Bank in its updated Global Economic Prospects report released this Tuesday cut its global growth forecast to 2.9% in January, 1.2 percentage points lower than projectedWhen you place it at 4.1%.

The main new element in the Bank’s forecasts is the Ukraine war, which started at the end of February and affected the world economy in many ways: a higher commodity prices, more supply chain problems and more uncertaintyamong others.

In the International Finance Organization, they especially underlined the following issues: Negative effects of a long period of stagflation on developing economieswarned that as a result of war and pandemic, these countries will have per capita income 5% lower than in 2019 by 2022.

The World Bank also cut its growth outlook for 2023 by 0.2 percentage points to 3% in this case.

“The war in Ukraine, the lockdowns due to Kovid-19 in China, the problems in the supply chain and the risk of stagflation are hitting growth. For many countries, it will be difficult to avoid a recession,” the bank president said. World, David Malpass.

Malpass encourages countries to “promote” production and fiscal, currency, climate and debt reforms this enables them to tackle “distribution problems and inequality”.

in the international financial organization He warned against the temptation to create price controls or export restrictions among the governments of developing countries. to deal with high prices and predictable citizen protests.

“Policymakers in emerging markets and emerging economies should avoid imposing export restrictions and price controls that could amplify increases in commodity prices,” the report said.

at the World Bank Compared the stagflation that could occur in the 1970s and the coming months and years -considered a classic example of this economic phenomenon- and reminded on this occasion that advanced economies need to raise interest rates drastically in order to recover.

These rate increases, in turn, were released financial crises in emerging markets and emerging economies by reducing international demand and available capital.

1.7 percentage point decrease in the GDP of the euro area

Among the largest economies on the planet, the World Bank forecasts 2.5% growth in the United States for this year (1.2 percentage points less than in January); 4.3% (a decrease of 0.8 percentage points) in China and also 2.5% (1.7 points less) in the euro area.

In the case of Japan, the financial institution expects growth of 1.7% (1.2 percentage points less than in January) and an 8.9% (11.3 percentage point less) decline in economic activity due to Russia’s occupation of Ukraine and the economic crisis. Sanctions imposed by other countries.

world Bank It left its growth forecast for Latin America and the Caribbean roughly the same as in January: 2.5%, only 0.1 points below the 2.6% predicted six months ago.

However, it has significantly lowered its regional forecast for 2023, which it set at 2.7% in January and has now reduced it to just 1.9%.