World Bank slashes global growth forecast

The World Bank on Tuesday slashed its global growth forecast by 1.2 percentage points to 2.9 per cent for 2022, warning that Russia's invasion of Ukraine has compounded the damage from the Covid-19 pandemic, with many countries likely to face recession.

The Russian invasion of Ukraine had magnified the slowdown in the global economy, which was now entering what could become "a protracted period of feeble growth and elevated inflation," the World Bank said in its Global Economic Prospects report.

World Bank President David Malpass said global growth was being hammered by the war, fresh Covid-19 lockdowns in China, supply-chain disruptions and the risk of stagflation, a period of weak growth and high inflation last seen in the 1970s.

"The danger of stagflation is considerable today," Malpass wrote in the foreword to the report. "Subdued growth will likely persist throughout the decade because of weak investment in most of the world. With inflation now running at multi-decade highs in many countries and supply expected to grow slowly, there is a risk that inflation will remain higher for longer."

Between 2021 and 2024, the pace of global growth is projected to slow by 2.7 percentage points, Malpass said, more than twice the deceleration seen between 1976 and 1979.

The report warned that interest rate increases required to control inflation at the end of the 1970s were so steep that they touched off a global recession in 1982, and a string of financial crises in emerging market and developing economies.

While there were similarities to conditions back then, there were also important differences, including the strength of the US dollar and generally lower oil prices, as well as generally strong balance sheets at major financial institutions.