World Bank raises concern over imminent stagflation

By Uche Kalu

WORLD Bank’s latest Global Economic Prospects report has revealed that the Russian invasion of Ukraine has magnified the slowdown in the global economy, which is entering what could become a protracted period of feeble growth and elevated inflation.

  World Bank Group President, David Malpass who stated this on Tuesday, said the crisis which now compounds the damage from the COVID-19 pandemic raises the risk of stagflation, with potentially harmful consequences for middle- and low-income economies alike.

  According to Malpass, “surging food and fuel import bills could reverse recent progress in poverty alleviation across Sub-Sahara Africa, especially in Nigeria, Democratic Republic of Congo, where vulnerable populations are sizable, and dependence on imported food is high.

  “Risks to the outlook are predominantly to the downside as growth is expected at 3.7 per cent in 2022 and 3.8 per cent in 2023 – on par with January projections. Yet, excluding the three largest economies, growth was downgraded by 0.4 percentage point both in 2022 and 2023.

  “It said that although elevated commodity prices would underpin recoveries in extractive sectors, in many countries rising inflation would erode real incomes, depress demand, and deepen poverty.”

  The group president further stated that global growth is expected to slump from 5.7 percent in 2021 to 2.9 percent in 2022— significantly lower than 4.1 percent that was anticipated in January, and expected to hover around that pace over 2023-24, as the war in Ukraine has disrupted activity and investment, with trade in the near term and pent-up demand fading, and fiscal and monetary policy accommodation withdrawn.

  As a result of the damage from the pandemic and the war, the level of per capita income in developing economies this year will be nearly 5 percent below its pre-pandemic trend.

  “The war in Ukraine, lockdowns in China, supply-chain disruptions, and the risk of stagflation are hammering growth. For many countries, recession will be hard to avoid.

  “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,” he said.