World Bank warns of potential recession due to conflict in Ukraine

LONDON: The World Bank has warned that countries around the globe are risking recession due to the impact of the Ukraine conflict on economies already shaken by the Covid outbreak. According to a report, less developed nations in Europe and East Asia face a “serious recession.”

World Bank president David Malpass stated that the likelihood of stagflation — high inflation and low economic growth — has also increased. Globally, energy and food costs have been growing.

“The crisis in Ukraine, lockdowns in China, disruptions in the supply chain and the possibility of stagflation are stifling GDP. Recession will be difficult to prevent in many nations,” Malpass added.

In June’s Global Economic Prospects report from the World Bank, he also cautioned that the risk of stagflation was “high.”

“Due to sluggish investment throughout the majority of the world, it seems likely that sluggish growth will endure for the whole decade. There is a possibility that inflation may remain elevated for a longer period, as it has reached multi-decade highs in a number of nations and the supply is likely to expand slowly.”

Also, on Tuesday, the World Bank approved an additional $1.49 billion (£1.2 billion) for Ukraine, which it stated, “would be used to pay the government and social workers’ salaries.”

The new funding is part of a $4 billion aid package for the country, which includes healthcare, education and sanitation, among other areas.

Since Russia invaded Ukraine, more than a hundred days have passed. It is only now that the magnitude of the shock waves affecting nations and households thousands of miles from the epicentre is becoming apparent.

Already, developing nations were trying to regain their footing. For every $20 households earned pre-pandemic, they now receive only $19.

However, escalating food and energy costs threaten to further destabilise livelihoods, bringing pain and hardship to the most vulnerable. This is not only true for impoverished nations. According to a poll, one in six British households had utilised a food bank.

This worldwide fight could be exacerbated by the rising interest rates needed to combat inflation, just as government aid to mitigate the effects of the pandemic dwindles.

From debt relief to pushing states not to restrict agricultural exports, the World Bank has demanded fast action.

Instead, they want authorities to demonstrate that they cooperate to protect food and energy supplies, calm volatile markets and reduce price surges. Already, policymakers have faced an enormous battle.

“The World Bank believes that we will face an even more protracted and terrible crisis if we stop working now”, Malpass said.

According to the World Bank, Ukraine and Russia are the European nations most likely to experience a severe decline in economic output in 2022.

However, it cautioned that the consequences of the war and the Covid epidemic would be more severe.

Malpass stated, “Even if a global recession is averted, stagflation might persist for a number of years if large supply increases are not implemented.”

He predicts that between 2021 and 2024, global growth will decelerate by 2.7 percentage points, which is more than double the slowdown observed between 1976 and 1979 when the world last experienced stagflation.

The researchers cautioned that the interest rate hikes required to manage inflation towards the end of the 1970s were so severe that they precipitated a global recession in 1982 and a spate of financial crises in a rising market and developing economies.

Source: NDTV

However, the dollar was weaker and oil was substantially more expensive throughout the 1970s.

Ayhan Kose, director of the World Bank’s Prospects Group, told the BBC, “There is not much that governments can do simply” to combat growing energy prices.

Kose stated that export restrictions, subsidies and price controls should not be implemented. “These interventions distort prices and result in even higher prices,” he added. (Credit: BBC)