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The World Bank has joined the rising chorus of recession alarmists. President David Malpass of the World Bank warned in his current prediction that “recession will be difficult to avert for many nations.”
Malpass joins a growing number of Wall Street analysts and central bankers around the world who are predicting a severe economic slump.
Last week, JPMorgan Chase (JPM) CEO Jamie Dimon warned of an impending economic “hurricane,” while Tesla’s (TSLA) Elon Musk stated he has a “very awful feeling” about the economy.
What’s to blame for the doom? “The crisis in Ukraine, lockdowns in China, supply-chain disruptions, and the possibility of stagflation are hammering GDP,” Malpass said in the World Bank’s newest outlook on Tuesday.
Stagflation, or the combination of low economic growth and excessive prices, has recently been a serious concern. Experts and older customers say the tendency is reminiscent of the late 1970s when an oil shock and a slow economy resulted in two recessions in the early 1980s, known as a “double-dip recession.”
Investors are concerned about the Federal Reserve’s aggressive interest rate hikes to try to cool surging prices. The issue is that some believe the Fed started its anti-inflation drive too late. As a result, the central bank risks triggering a recession as it rushes to catch up with future rate hikes.
Longer-term Treasury bond yields have already risen this year as a result of the Fed’s threat to raise short-term rates. In addition, mortgage rates have also risen, raising fears that the housing market may slump significantly.
Businesses are also dealing with rising commodity and payroll prices and the possibility of increasing loan rates affecting their bottom lines.
When you consider all of this, it’s easy to see why the World Bank is becoming increasingly concerned. The International Monetary Fund now forecasts the global economy to grow at a 2.9 percent annualized rate this year. This is a significant decrease from last year’s 5.7 percent growth rate and the World Bank’s January 2022 prediction of 4.1 percent.
“The recovery from the 1970s stagflation necessitated high increases in interest rates in major advanced economies, which played a key role in precipitating a run of financial crises in emerging market and developing economies,” the World Bank stated in its latest projection.
The World Bank does not see a significant recovery anytime soon. Instead, it predicted that global GDP will “hover around” 2.9 percent next year and in 2024, describing the next years as “a prolonged period of sluggish growth and rising inflation.”