The World Bank on Tuesday presented a bleak outlook for the global economy that could spread across the planet. The agency lowered its estimates for economic growth and He warned that this could lead to a period of stagflation I haven’t seen him since the seventies.
What does stagflation mean? It occurs when two variables combine: weak economic growth and an accelerated rise in prices or inflation. This is what the World Bank sees as most likely to happen in the short term, given the impact of Russia’s invasion of Ukraine and ongoing problems with supply chains amid the COVID-19 pandemic.
The agency sharply lowered its estimates of economic growth. It now expects the global economy to grow by 2.9% this year, 1.2 points less than its forecast last January. And that that the US is expanding even less than 2.5% Compared to the 3.7% forecast at the start of the year.
Figures a far cry from the growth levels recorded in 2021, although they indicate that at this time Recessions can be avoided globally and in the United States, This has alarmed many people in the country recently.
“The Russian invasion of Ukraine has compounded the global economic slowdown, which is entering what could be a prolonged period of weak growth and high inflation,” the World Bank said in its report.
“This increases the risks of stagflation, which could have severe consequences for low- and middle-income economies,” he added.
In addition to the weak growth outlook, there are other factors that put us in a situation similar to what happened in the 1970s. There are still problems with supply chains that fuel inflation, and central banks – including the US Federal Reserve – will have to sharply adjust interest rates to control rising consumer prices.
Although there are some bright spots that help mitigate this scenario, according to the World Bank. Prices of some raw materials are not as high as they were at the time and financial institutions are in a better position to cope with economic weakness. The dollar, the world’s main currency, also reflects strength.
How can a prolonged period with stagflation affect us?
Spending too much time with a stagflation scenario could mean that central banks are unable to control inflation and have to keep adjusting interest rates upwards. These settings usually have side effects: It slows down economic growth and in some cases can lead to recession.
This will affect our pockets and our plans as consumers. On the one hand, it will cost us more to borrow, and on the other hand, we will have to rethink our financial projects if their cost is outside our budget. Higher interest rates translate to higher credit card debt or a higher cost on the mortgage you’re considering.
Globally, the World Bank expects inflation to peak in the middle of this year and drop to around 3% by the middle of next year. It will take some time to recede amid the blow of the Russian invasion, as both Russia and Ukraine are major sources of raw materials.
“The war-induced supply shortages and disruptions in the movement of those supplies have fueled commodity price hikes, on top of the strong progress seen since mid-2020 and global inflationary pressures,” the World Bank said.