You can add the World Bank to the growing chorus sounding recession alarm bells. In its latest outlook, World Bank president David Malpass said “for many countries, recession will be hard to avoid.”
The reasons for the gloom? Malpass said in the World Bank’s latest outlook Tuesday that “the war in Ukraine, lockdowns in China, supply-chain disruptions and the risk of stagflation are hammering growth.”
Stagflation, the combination of stagnant economic growth and high inflation, has become a major worry of late. The trend is reminding experts and older consumers of the late 1970s, when an oil shock and sluggish economy led to two downturns, a so-called double-dip recession, in the early 1980s.
Investors are nervous about the fact that the Federal Reserve is raising interest rates aggressively to try and tamp down rising prices. The problem, though, is that some fear the Fed was too late starting its campaign to combat inflation. As a result, the central bank could spark a recession as it rushes to catch up with more rate hikes.
The prospect of higher short-term rates from the Fed have already led to a spike in longer-term Treasury bond yields this year. Mortgage rates have jumped as well, leading to worries that the housing market could slow dramatically.
Businesses are also grappling with higher costs for commodities and wages and now have to contend with higher interest rates potentially hurting their bottom lines as well.
Add all that up and it’s easy to see why the World Bank is increasingly nervous. The international lending organization now expects the global economy to grow at an annualized pace of just 2.9% this year. That is down sharply from the 5.7% growth rate last year as well as the World Bank’s January 2022 forecast of 4.1%.
“The recovery from the stagflation of the 1970s required steep increases in interest rates in major advanced economies, which played a prominent role in triggering a string of financial crises in emerging market and developing economies,” the World Bank said in its new forecast.
The World Bank isn’t expecting a big rebound anytime soon. It said that global growth should “hover around” the 2.9% level for both next year and 2024, describing the next few years as “a protracted period of feeble growth and elevated inflation.”