The World Bank slashed its growth estimate for the global economy to 2.9 percent, 1.2 percentage points below the January forecast, due to the Russian invasion of Ukraine which has caused a severe downturn.
“The world economy is expected to experience its sharpest deceleration following an initial recovery from global recession in more than 80 years,” the bank said Tuesday in its Global Economic Prospects report.
The slump comes after growth recovered to 5.7 percent in 2021 following the downturn caused by the COVID-19 pandemic.
The Russia invasion and Western sanctions on Moscow have sent grain and oil prices soaring, and drivers around the world are facing eye-popping prices at the pump.
“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,” said World Bank President David Malpass.
The war is compounding the damage from the Covid-19 pandemic, magnifying the slowdown in the global economy, “which is entering what could become a protracted period of feeble growth and elevated inflation,” according to the report.
“This raises the risk of stagflation, with potentially harmful consequences for middle- and low-income economies alike.”
The report notes some similarities to the 1970s when growth stalled and inflation skyrocketed with supply factors fueling price hikes and a long period of low interest rates.
But in contrast to that period, the US dollar is strong, and major financial institutions are in solid position.
The bank warned against trying to resolve the inflation spike with price controls or export restrictions.
Malpass said it “is urgent to encourage production and avoid trade restrictions.”
The report cut the US growth estimate by 1.2 points to 2.5 percent, and the forecast for China was lowered 0.8 point to an unusually low 4.3 percent.
Meanwhile the euro area forecast was cut to 2.5 percent, and Japan to 1.7 percent.
Russia’s economy is expected to contract this year by 11.3 percent.