Global development is at high risk because of the war in Ukraine and the consequences of the coronavirus pandemic, says a new report published by the World Bank. In advanced economies, the growth rate is expected to slump to 2.6% in 2022 compared to 5.1% in 2021. This sharp decline is mainly due to rising energy prices, unfavorable financial conditions, and supply chain disruptions following the Russian invasion. Emerging markets and developing economies are also expected to record a significant drop with the economic growth rate sinking to 3.4% in 2022 compared to 6.6% in 2021.
The World Bank forecasts that global economic growth will drop to 2.9% in 2022, far less than the 5.7% recorded in 2021. Global Economic Prospects, published in June 2022, also anticipates unfortunate global development rates for 2023-24 as,c according to the report, the growth rate is expected to hover around 3% in that period.
Fig.1. Global Growth
Source: World Bank, Global Economic Prospects, June 2022
Remarkably, back in January before the war began, the World Bank had predicted 4.1% global growth for 2022. However, Russia’s invasion of Ukraine has jeopardized trade and repressed demand, further affecting the already reduced economic growth of the post-pandemic period. Severe inflationary pressures and monetary contractions following the Russian invasion account for most of the 1.2 percentage points fall. The new forecast published by the agency not only significantly differs from the one published in January but is also less than the 3.6% published in April 2022 by the International Monetary Fund.
“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. “Markets look forward, so it is urgent to encourage production and avoid trade restrictions. Changes in fiscal, monetary, climate, and debt policy are needed to counter capital misallocation and inequality.”
In the last decade, the sharpest drop in economic growth was recorded in 2020 when global development contracted by 3.3%. After this, countries were expected to accelerate growth rates to recover from the pandemic-related decline. However, the war in Ukraine put at risk the global recovery by introducing new trade-related restrictions. Overall, before the pandemic, global economic growth was equal to 3.4% in 2017, 3.3% in 2018, and 2.6% in 2019.
According to the report, advanced economies are expected to record 2.6% economic growth in 2022. This reduction is expected to persist with growth reaching 2.2% and 1.9% in 2023 and 2024, respectively. Emerging markets and developing economies are anticipated to experience 3.4% economic growth in 2022, with the rate growing in 2023 and 2024 up to 4.2% and 4.4%, respectively.
“Developing economies will have to balance the need to ensure fiscal sustainability with the need to mitigate the effects of today’s overlapping crises on their poorest citizens,” said Ayhan Kose, Director of the World Bank’s Prospects Group. “Communicating monetary policy decisions clearly, leveraging credible monetary policy frameworks, and protecting central bank independence can effectively anchor inflation expectations and reduce the amount of policy tightening required to achieve the desired effects on inflation and activity.”
The existing unfavorable economic environment is being further damaged by the growing level of inflation rates both in advanced and developing countries. According to the report, global consumer price inflation has increased in almost every country. While inflation rates are expected to moderate in 2022, in the long run, they are expected to remain above the inflation targets set by the central banks of many economies. Overall, median headline consumer price inflation grew to 7.8% (y/y) in April 2022. The aggregate inflation rate surpassed 9.4% in emerging markets and developing economies which is the highest rate ever recorded since the 2008 financial crisis. In advanced economies, the inflation rate reached 6.9%, the highest since 1982.
Fig.2. Real GDP
