The World Bank released a midyear assessment warning that multiple economies could slip into a recession as the effects of ongoing global shocks accumulate. Stagnation, weak growth, and persistent inflation are the central risks highlighted, driven in large part by the war in Ukraine and the lingering disruptions from the COVID-19 pandemic.
In its updated Global Economic Prospects, the World Bank trimmed its global growth forecast to 2.9 percent, a reduction of 1.2 percentage points from the previous January projection, which had stood at 4.1 percent. The downgrade underscores how the Ukraine conflict has amplified price pressures, continued supply chain fragilities, and heightened uncertainty across markets worldwide.
The bank emphasizes several key factors pushing the global outlook lower. First, the prolonged period of stagflation poses distinct challenges for developing economies, with estimates suggesting that as a result of war and pandemic, per capita income in these regions could fall roughly 5 percent relative to 2019 by 2022. The projection for 2023 also shows a slower expansion, with the growth outlook reduced by 0.2 percentage points to 3 percent.
World Bank President David Malpass noted that the combination of the Ukraine war, COVID-19-related lockdowns in China, ongoing supply chain problems, and the risk of stagflation is weighing on growth. He warned that many countries may face recessionary conditions unless policy responses shift toward more productive and stabilizing measures.
Malpass advocated for a set of reforms to bolster resilience: boosting domestic production and implementing prudent fiscal, currency, climate, and debt policies that can address distribution issues and rising inequality. He cautioned against quick fixes that might backfire, such as price controls or export restrictions, which could worsen inflation or provoke countermeasures elsewhere.
The World Bank underscored that policymakers in emerging markets should resist export bans and price control schemes that could amplify price increases for basic commodities. The report highlights the danger of short-sighted measures that may curb inflation in the near term but damage growth and investment in the longer run.
Drawing a parallel with the 1970s stagflation, the bank reminded readers that advanced economies may need to tighten monetary policy decisively to restore balance. Higher interest rates can cool demand but also restrain investment and global capital flows, especially in economies still adjusting to post-pandemic conditions. The resulting shifts in funding costs can spark new financial tensions in vulnerable markets.
In the regional outlooks, the euro area faces a significant downgrade, with a 1.7 percentage point decline in its GDP projection, and the broader European economy is marked by uncertainties that affect trade, energy markets, and consumer confidence. The United States is forecast to grow at about 2.5 percent this year, a decline of roughly 1.2 points from January, reflecting a slower pace than previously anticipated. China is projected at 4.3 percent growth, down by about 0.8 percentage points, while Japan is seen expanding by 1.7 percent, down 1.2 points due to the same global pressures and sanctions effects tied to Russia’s actions.
For Latin America and the Caribbean, the World Bank maintains a roughly 2.5 percent growth projection, only slightly lower than six months ago, yet the overall regional forecast for 2023 has been trimmed to around 1.9 percent from an earlier 2.7 percent. These regional shifts illustrate how uneven the recovery is across different economies and the role that regional policy decisions and external factors play in shaping outcomes.
Across the globe, the message remains clear: growth is fragile, inflation remains a concern, and fiscal and structural reforms will matter more than ever. The World Bank’s guidance is to pursue reforms that strengthen productive capacity and resilience, to support more inclusive growth, and to avoid measures that could destabilize markets or raise the burden on households during periods of high prices and uncertainty. In this complex environment, authorities are urged to balance stabilization with long-term investment in areas like infrastructure, climate resilience, and social protection, ensuring that recovery paths are durable and broad-based.
Key regional and global projections
Among the major economies, the United States is anticipated to post about 2.5 percent growth for the year, reflecting reductions from earlier estimates. China’s growth is expected to come in around 4.3 percent, with a notable downward revision, while the euro area is projected to grow at approximately 2.5 percent, reflecting ongoing headwinds from energy markets and demand dynamics. Japan’s expansion is seen at about 1.7 percent, with other factors affecting economic activity tied to global sanctions and the fluidity of international trade.
The World Bank notes that Latin America and the Caribbean should see modest gains, though the pace will depend on commodity prices, domestic policy choices, and external demand. Regions with stronger policy coordination, credible macroeconomic frameworks, and targeted investment in resilience may better weather the shocks and protect vulnerable groups from the worst effects of inflation and slow growth.