You can add the World Bank to the increasingly louder recession alarm bells. In his latest outlook, World Bank President David Malpass said that “a recession is hard to avoid for many countries.”
Malpass joins many others on Wall Street and central banks around the world who are beginning to warn of a sharp economic downturn.
Jamie Dimon, CEO of JPMorgan Chase, referred to an economic “hurricane” on the horizon last week, while Tesla’s Elon Musk said he has a “super bad feeling” about the economy.
The reasons for the gloom? Malpass said in the World Bank’s latest outlook on Tuesday that “the war in Ukraine, lockdowns in China, supply chain disruptions and the risk of stagflation are slowing growth”.
Stagflation, the combination of stagnant economic growth and high inflation, has recently become a major concern.
The trend reminds experts and older consumers of the late 1970s, when an oil shock and a sluggish economy in the early 1980s led to two recessions, a so-called double-dip recession.
Investors are nervous that the Federal Reserve is aggressively raising interest rates to try to dampen rising prices. The problem, however, is that some fear that the Fed has started its inflation-fighting campaign too late. As a result, the central bank could trigger a recession as it rushes to catch up with more rate hikes.
The prospect of higher short-term yields from the Fed has already led to a spike in longer-term government bond yields this year. Mortgage rates have also risen, leading to concerns that the housing market could slow dramatically.
Companies are also grappling with higher raw material and wage costs and are now faced with higher interest rates that may also hurt their bottom line.
Add that all up and it’s easy to see why the World Bank is getting more and more nervous. The international credit organization now expects the global economy to grow at just 2.9 percent year-on-year this year. That is significantly lower than the growth rate of 5.7 percent last year and the World Bank’s forecast for January 2022 of 4.1 percent.
The recovery from the stagflation of the 1970s required sharp increases in interest rates in the major advanced economies, which played a prominent role in triggering a series of financial crises in emerging markets and emerging economies, the World Bank said in its new forecast. .
The World Bank does not expect a major recovery anytime soon. It said global growth should hover around 2.9 percent for both next year and 2024, describing the coming years as “a prolonged period of weak growth and high inflation”.