FX.co ★ Stagflation risk rises amid sharp slowdown in growth

The global economy will face a protracted period of feeble growth and elevated inflation, according to the World Bank’s latest Global Economic Prospects report. Global growth is expected to slump to 2.9% in 2022.

Back in January, the World Bank and some other analysts expected global GDP to rise by 4.1%. However, such forecasts now seem to be unrealistic. The world economy is entering a new era of development, which could prove to be a prolonged period of sluggish growth and high inflation. According to World Bank President David Malpass the war in Ukraine, lockdowns in China, supply-chain disruptions, and the risk of stagflation are hampering growth. These are situations in which an economic downturn is followed by a price spike.

“Markets look forward, so it is urgent to encourage production and avoid trade restrictions. Changes in fiscal, monetary, climate and debt policy are needed to counter capital misallocation and inequality,” Malpass stressed. In developed countries, GDP growth could reach 2.6%. While in 2021 the figure was as high as 5.1%. In 2023, the indicator is expected to fall to 2.2%. Among developing economies, growth is also projected to fall from 6.6% in 2021 to 3.4% in 2022, well below the annual average.