WASHINGTON: Compounding the damage from the COVID-19 pandemic, the Russian invasion of Ukraine has magnified the slowdown in the global economy, which is entering what could become a protracted period of feeble growth and elevated inflation, according to the World Bank’s latest Global Economic Prospects report.
“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. “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.
Growth in South Asia is projected to moderate to 6.8 and 5.8% in 2022 and 2023, respectively, as the momentum of the recovery wanes, and the war in Ukraine undermines external demand and erodes real incomes through higher food and energy prices.
Consumer price inflation in South Asia has been rising rapidly and now exceeds central banks’ targets. In Pakistan and Sri Lanka, annual headline consumer inflation reached double digits by late last year and has accelerated further during 2022; in the latter to close to over 30%.
Growth is expected to slow from 7.6%t in 2021 to 6.8 percent in 2022—0.8% points below previous projections. Surging food costs in a region populated by more than one-third of the global poor and where one-fifth of calories come from wheat products pose significant challenges to poverty alleviation and food security.
Downside risks to the outlook relate to adverse geopolitical developments, the possibility of even-higher inflation, tighter financing conditions, the re-emergence of stress in the financial sector, and the resurgence of the COVID-19 pandemic, all in an environment of high debt levels and worsening current account positions.
Global growth is expected to slump from 5.7% in 2021 to 2.9% in 2022 significantly lower than 4.1% that was anticipated in January. As a result of the damage from the pandemic and the war, the level of per capita income in developing economies this year will be nearly 5% below its pre-pandemic trend.