World Bank warns of inflation stems from economic stagnation | Money and business | zad jordan news

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On June 7, the World Bank released its latest Global Economic Prospects report, warning that in the context of the world economy severely affected by the outbreak of the Corona virus, the Russian war caused another rift, causing the crisis worsens, the global economy may enter a period not short of slow growth High inflation will increase the risks of inflation associated with economic stagnation, which could harm emerging and developing economies.

In its report, the World Bank expects global economic growth to slow from 5.7% in 2021 to 2.9% in 2022, which is much lower than the 4.1% expected in January, but due to the epidemic . The Russian-Ukrainian conflict Per capita income in developing economies will be about 5% lower this year than the previous trend of the epidemic.

In addition, the World Bank expects global economic growth to recover slightly to 3.0% in 2023, but also 0.2 percentage points lower than expected in January this year, due to the fact that the Russian-Ukrainian conflict is expected to continue in Disruption. of economic activity, investment and trade, while the release of previously pent-up demand will be completed gradually, along with the gradual withdrawal of fiscal and monetary easing policies in several countries.

World Bank President David Malpass pointed out that the Russian invasion of Ukraine, recurring epidemics, supply chain disruptions and the risk of stagflation would take a heavy toll on economic growth. For many countries, economic stagnation will be inevitable.

Will the global economy return to stagflation of the 1970s?

It is noteworthy that this issue of the World Economic Outlook is the first of its kind to systematically assess current global economic conditions against 1970s stagflation, particularly the impact of stagflation on emerging markets, developing economies, and global stock trading markets. advanced economies emerging from stagflation in the 1970s became an important factor in unleashing a series of financial crises in emerging markets and developing economies.

The report points out that the current economic situation resembles the 1970s in three main respects: sustained supply-side turmoil leading to higher inflation and is preceded by a long period of highly accommodative monetary policy in large advanced economies and sluggish growth prospects on emerging markets. and developing economies.

However, there are many differences from the 1970s: the dollar is strong in stark contrast to the serious weakness of the dollar in the 1970s, commodity prices are higher than they were in the 1970s, and the balance sheets of major financial institutions are generally healthy.

According to World Bank projections, global inflation will decline next year, but inflation in many economies is likely to remain above the inflation target, and the report indicated that if inflation remains high and countries adopt policies similar to those used to stag inflation in the 1970s, it leads This is due to a severe global economic downturn and financial crises in some emerging and developing market economies.

Russia-Ukraine war weighs on global growth prospects

The report also provides new analysis on the impact of Ukraine’s invasion of energy markets, its impact on global growth prospects, higher energy prices, lower real incomes, higher production costs, tighter financial conditions and constraint of macroeconomic policy space, especially in energy importing countries. . .

The report added that growth rates for advanced economies are expected to fall sharply this year to 2.6% from 5.1% in 2021, 1.2 percentage points lower than the January forecast, and a further slowdown to 2.2% expected in 2023, mainly due to cloud. More financial and financial support during the pandemic.

The report also indicated that growth in emerging and developing economies is also expected to slow from 6.6% during 2021 to 3.4% in 2022, which is much lower than the average annual growth rate of 4.8% during 2011-2019, is it because although energy prices The rise has boosted short-term growth for some commodity exporters, but it could not offset the broader impact of the negative outcome of the Russian-Ukrainian conflict.

The report highlights the need for decisive political action at global and national level to avoid the worst effects of the Russian war on the global economy, and it calls for coordinated global efforts to reduce human casualties, the blow of high oil and food prices mitigates, accelerates debt relief, and expands vaccinations in low-income countries.

In addition, policymakers must refrain from implementing distortive policies such as price controls, subsidies and export bans that could exacerbate commodity price increases, against a grim backdrop of rising inflation, slowing growth, tighter financial conditions and limited fiscal policy space. Adjust spending priorities and provide targeted relief to vulnerable groups.

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