Compounding the damage done by the Covid-19 pandemic, Russia’s 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.

This raises the risk of stagflation, with potentially harmful consequences for middle- and low-income economies alike, the report states.

Global growth is expected to slump from 5.7% in 2021 to 2.9% this year – considerably lower than 4.1% that was anticipated in January.

It is expected to hover around that pace over 2023 to 2024, as the war in Ukraine disrupts activity, investment and trade in the near term, pent-up demand fades and fiscal and monetary policy accommodation is withdrawn.

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.

“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.

“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,” says World Bank Group president David Malpass.

The June Global Economic Prospects report is noted to offer the first systematic assessment of how current global economic conditions compare with the stagflation of the 1970s – with a particular emphasis on how stagflation could affect emerging market and developing economies.

The recovery from the stagflation of the 1970s is said to have required steep increases in interest rates in major advanced economies, which played a prominent role in triggering a string of financial crises in emerging market and developing economies.

SUB-SAHARAN AFRICA

The World Bank Reports that growth in sub-Saharan Africa is likely to decelerate from 4.2% in 2021 to 3.7% this year, as high inflation and policy tightening weaken domestic demand.

Growth is projected to firm slightly to an average of 3.9% in 2023/24, assuming further progress with pandemic containment, favourable terms of trade in commodity exporters, and a gradual easing of global food price pressures, the report states.

South Africa’s growth is expected to fall back to 2.1% this year and to average at about 1.7% in 2023/24.

“High unemployment, power shortages and slow reform momentum are expected to continue discouraging private investments.

“High government debt, along with elevated debt service costs, are expected to constrain much-needed public investment.

“The interest rate has already been raised four times during the current hiking cycle, with further increases likely in order to cool rising inflation,” the World Bank notes.