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Entrepreneurs, bankers, and investors have been talking for months about the likelihood of a recession. The world's premier international credit institution is joining the chorus that a recession is likely, and warns of worse to come.
The World Bank expects global economic growth to slow down before the end of the year, and most countries should prepare for a recession.
The president of the World Bank said that it will be hard to avoid a recession.
According to the report, the rate of global growth is expected to slow down this year. The World Bank had predicted 4.1% growth for the year.
According to the report, the global economy had already been affected by the effects of the COVID-19 epidemic, which left international supply chains in tatters and hampered income growth and poverty reduction efforts in developing countries.
After the outbreak of the Ukraine War, the World Bank was forced to lower its predictions for global growth because of high food and fuel prices.
After the deepest global recession since World War II, the world economy is again in danger.
In the U.S., Russia's invasion of Ukraine and rapid rise in prices have pushed the Federal Reserve into a strategy of aggressive interest rate hikes to tame inflation. The economy could go into a recession if interest rates go too high.
Most economists think that a downturn of that magnitude is unlikely, with most people assuring that the outcome will be a mild recession, as is normal at the end of business cycles.
The World Bank warns that even a mild recession could cause lasting scars on the global economy, as the combination of today's economic forces could lead to'stagflation', a mixture of low growth and high prices that is toxic to economies in developing countries.
Malpass mentioned the threat of stagflation multiple times in the World Bank report.
It is likely that several years of above-average inflation and below-average growth will have destabilizing consequences for low- and middle-income economies. tagflation is a phenomenon that the world has not seen in decades.
Stagflation occurs when the economy goes through a downturn. During the 1970s high oil prices caused high inflation worldwide and a recession in countries that imported large oil volumes from the Middle East.
Stagflation can be considered the worst of all worlds, as inflation usually counteracts a Shrinking economy. The same conditions that made a return in the 70s seem to be happening again.
Malpass said that the interest rate increases that were required to control inflation at the end of the 1970s were so steep that they touched off a global recession.
Malpass said that restoring normal supply chain operations and increasing production around the world are keys to avoiding Stagflation. Over the past few months, China has experienced a blow to global manufacturing, and energy constraints due to the war are preventing supply chains from returning to normal.
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