The World Bank warns against stagflation

world Bank officially warns against stagflation, which is a dangerous phenomenon that combines weak economic growth and high inflation.

- In the report published on Tuesday, World Bank specialists lowered their forecast of global economic growth. Earlier forecasts assumed a decline from 5,7%. in 2021 to 4,1 percent. in the current year. The reduced estimates indicate an increase in 2022 of 2,9%, which would continue in the years 2023-2024 - analyzes Daniel Kostecki, director of the Polish branch of Conotoxia Ltd.

Pandemic, war, commodity prices ...

The reasons for the warnings and cuts in the World Bank's forecasts seem quite obvious. Russia's invasion of Ukraine and the ensuing soaring commodity prices have compounded the damage caused by the COVID-19 coronavirus pandemic to the global economy, which, according to the World Bank, is now entering a prolonged period of weak growth and elevated inflation, well above the target in many economies.

David malpass, the president of the World Bank, stated that the war in Ukraine, covid blockades and restrictions in China, disruptions in the supply chain and the risk of stagflation are hitting economic growth. Recession will be difficult to avoid in many countries.

Will we have a repeat from the 70s?

The current conditions of high inflation and weak economic growth are similar to the 70s, a period of strong stagflation that required a sharp increase in interest rates in advanced economies. It also caused a series of financial crises in emerging and developing economies.

The World Bank report concluded that there were clear parallels between then and today. These include supply-side disruptions, the prospects for slower growth and the weakness of emerging economies to tighten monetary policy, which will be necessary to contain inflation.

- However, there are also a number of differences between what happened in the 70s and the current situation. It goes, among others about the strength of the US dollar, lower oil prices overall, and generally strong balance sheets of major financial institutions that provide room for maneuver - indicates Daniel Kostecki from Conotoxia Ltd.