The World Bank Group yesterday said more countries are likely to go into recession as global economic activities slow to 2.9 per cent in 2022.
World Bank President, David Malpass, who disclosed this during the launch of the June 2022 Global Economic Prospects (GEP) report, said the forecast is close to one-third lower than the January forecast of 4.1 per cent.
He attributed expected drop in global economic activities to surging inflation, rising interest rates, and the war in Ukraine.
Malpass said that that for many countries, recession will be hard to avoid. “With the supply of natural gas constrained in poorer countries for use in fertilizer, farming, and electricity grids, announcements of major production increases will be essential for restoring non-inflationary growth,” he said.
Continuing, he said: “Global economic activity is expected to slow to 2.9 percent in 2022. Several years of above-average inflation and below-average growth now seem likely. The path will depend heavily on supply decisions taken now, especially for energy; and on central bank policies to encourage business investment as interest rates normalize,” he said.
The report said the growth forecast for emerging market and developing economies (EMDEs) this year has been lowered to 3.4 per cent (from 4.6 per cent expected in January 2022).
“In this latest GEP, forecasts for 2022 growth have been revised down in nearly 70 per cent of EMDEs compared to the January release. The risk from stagflation is considerable, with potentially destabilizing consequences for low- and middle-income economies,” Malpass said.
He said that in 2022, the level of EMDE per capita income will be nearly five per cent below its pre-pandemic trend while subdued growth will likely persist throughout the decade because of weak investment in most of the world.
On way out, he said that in this extraordinary era of overlapping global crises, policymakers need to focus their efforts in five key areas to respond to the crises and improve the outlook for developing countries.
Firstly, the World Bank boss called for the need to limit the harm to people directly affected by the war in Ukraine and actively counter the spike in oil and food prices.
“As Europe realigns its energy supply away from Russia and absorbs new resources from around the world, it reduces the availability of energy, electricity, and food elsewhere. This makes new energy and food production an imperative for both Europe and the world,” he said.
Malpass added that it is also crucial to avoid export and import restrictions and subsidies that magnify the rise in prices and distort markets.
“In the poorest nations – those at greatest risk from shortages of fertilizer and food – targeted social safety nets and cash transfers need to be buttressed. This supports the vulnerable and helps countries avoid more costly subsidies and price controls,” he said.
He also stated the need to step up debt-relief efforts. “Debt vulnerabilities were acute for low-income countries even before the pandemic. As debt distress spreads to middle-income countries, the danger is growing. Debt relief needs to be rapid, comprehensive, and sizable in order to avoid deeper crises and allow recovery,” he said.
Malpass also sought the need to strengthen health preparedness and efforts to contain COVID-19 and effectively address climate change as a continuing challenge.
“It requires massive investments in cleaner energy, energy efficiency, and electricity grids and transmission. Gas flaring, methane leakage, and the operation of antiquated coal-fired power plants, with severe health and environmental impacts, continue with little abatement,” he said.
Malpass sated that the energy tradeoffs made in Europe will have major consequences for developing countries.
“Already, the high price of liquified natural gas (LNG) is causing reduced crop yields and an increased use of coal, diesel, and heavy fuel oil. Investments need to be made now to stop this shift into more carbon-intensive fuels,” he said.
