21st Century Business Herald reporter Zheng Qingting Beijing report June 7, World Bank released the latest issue of the Global Economic Outlook (hereinafter referred to as the Report) warning that in the context of the hard hit by the global economy , the Russian-Ukrainian conflict has made the situation worse, and the global economy may enter a long period of weak growth and high inflation. This leads to an increase in the risk of stagflation, which may cause harm to the middle-income and low-income economies.
World Bank predicts in the report that global economic growth will drop from 5.7% in 2021 to 2.9% in 2022, far lower than the expected 4.1% in January this year. Not only that, due to the epidemic and the conflict between Russia and Ukraine, the per capita income of developing economies will be nearly 5% lower this year than the trend level before the outbreak.
In addition, the World Bank predicts that the global economic growth rate will rebound slightly to 3.0% in 2023, but it is also 0.2 percentage points lower than expected in January this year. This is because the Russian-Ukrainian conflict is expected to continue to disrupt economic activities, investment and trade. At the same time, the release of previously suppressed demand will be gradually completed, and the fiscal and monetary easing policies of various countries will be gradually withdrawn.
World Bank President David Malpass pointed out that the Russian-Ukrainian conflict, repeated epidemics, supply chain disruptions and stagflation risks are causing a heavy blow to economic growth. "For many countries, an economic recession will be inevitable."
Malpass said, "The market is looking forward, so it is urgent to encourage production and avoid restricting trade. In order to solve the problems of capital mismatch and inequality, it is necessary to finance, currency, and gas. ”
report said that due to the residual impact of the COVID-19 pandemic and weak global demand, China's economic growth rate is expected to be 4.3% and 5.2% in the next two years, 0.8 percentage points and 0.1 percentage points lower than January's forecast, respectively; while the U.S. growth rate is 2.5% and 2.4% in the next two years, 1.2 percentage points and 0.2 percentage points lower than January's forecast, respectively.
Will the global economy reproduce the stagflation situation in the 1970s?
It is worth mentioning that this issue of the Global Economic Outlook systematically evaluates the current global economic situation in the 1970s for the first time, especially the impact of stagflation on emerging markets and developing economies. The report said that in order to get out of the stagflation of the 1970s, developed economies significantly raised interest rates, which became an important factor in triggering a series of financial crises in emerging markets and developing economies.
, Director of the World Bank Forecasting Bureau, Aihan Coase, said: "Developing economies must balance the two aspects of ensuring fiscal sustainability and mitigating the impact of current multiple crises on the poorest population. Clearly conveying monetary policy decisions, making full use of the reliable monetary policy framework and protecting the independence of central bank can effectively anchor inflation expectations , reducing it to achieve control The scale of policy tightening that needs to be implemented in inflation and promote the specific effects of economic activities. "
report pointed out that the current economic situation is similar to the 1970s in three key aspects: the continued supply-side disruption pushes up inflation, and before that, major developed economies adopted a high degree of easing monetary policy for a long time; the growth prospects slowed; the tightening of monetary policy required to control inflation will have adverse effects on emerging markets and developing economies.
However, there are many different situations from the 1970s: the US dollar is strong, which is in sharp contrast to the severe weakness of the US dollar in the 1970s; the price increase of commodities is smaller than that in the 1970s; the overall balance sheet of major financial institutions is in good condition. More importantly, unlike in the 1970s, stabilizing prices is now a clear mission for central banks in developed economies and many developing economies, many of which have established credible records of achieving inflation targets over the past 30 years.
According to the World Bank's forecast, global inflation will fall next year, but the inflation level in many economies may still be higher than the inflation target. The report pointed out that if inflation continues to remain high and the relevant countries adopt policy measures like resolving stagflation in the 1970s, it may lead to a sharp decline in the global economy and financial crises in some emerging markets and developing economies.
The Russian-Ukrainian conflict seriously drags down the global economic growth prospects
report also made new analysis on how the impact of the Russian-Ukrainian conflict on the energy market drags down the global growth prospects. The Russian-Ukrainian conflict has caused the price of various energy commodities to soar. Increased energy prices will reduce real income, increase production costs, tighten financial conditions, and restrict the space for macroeconomic policies - especially in energy importers. The
report pointed out that the growth rate of developed economies is expected to drop sharply from 5.1% in 2021 to 2.6%, 1.2 percentage points lower than the January forecast. It is expected to slow further to 2.2% in 2023, mainly due to further withdrawal of fiscal and monetary support during the pandemic. The
report also pointed out that growth in emerging markets and developing economies is expected to fall from 6.6% in 2021 to 3.4% in 2022, far lower than the average annual growth rate of 4.8% between 2011 and 2019. This is because although rising energy prices have a short-term boost to growth on some commodity exporting countries, it still cannot offset the widespread impact of the negative spillover effect of the Russian-Ukrainian conflict. The Bank has lowered its growth forecast for nearly 70% of emerging market and developing economies in 2022, including most commodity importers and four-fifths of low-income countries. The
report emphasizes that decisive policy actions are needed at the global and national levels to avoid the most serious consequences of the conflict between Russia and Ukraine. This requires a joint global effort to reduce the human injury caused by the Russian-Ukrainian conflict, alleviate the impact of soaring oil and food prices, speed up debt relief, and expand vaccination in low-income countries. Measures are also needed at the national level to make a strong supply response while maintaining the global commodity market well.
In addition, policy makers should avoid distorted policies such as price controls, subsidies and export bans that may exacerbate the price increase of commodities. Against the backdrop of rising inflation, slowing growth, tightening financial conditions and limited space for fiscal policy, the government needs to re-determine priority expenditure matters and provide targeted assistance to vulnerable groups.
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