Video on World Bank Warning on Recession: https://www.youtube.com/watch?v=bOmbLZypT0o

WORLD — Despite the recovery efforts of countries worldwide after the COVID-19 pandemic, the prospect for the world’s overall economy is leaning towards the dimmer part of the spectrum.

The subsequent global economic tightening brought by the pandemic to cope with the rising inflation together with the recent significant increase in commodity prices brought by the Ukraine-Russia war, both massive producers of essential foods such as wheat and maize is what the United Nations (UN) has called these the major recipes for a “perfect storm” brewing and waiting for domino pieces to start falling.

Unfortunately, it might have started now. Sri Lanka, a small island nation just below India, is on the brink of bankruptcy and collapse amidst all the mentioned major catastrophes negatively affecting the country extensively and Iran, which has been on a food shortage and economic fall-out coupled with multiple international sanctions, which seems to be following closely behind Sri Lanka, only it is a Nuclear Power which could further complicate things.

Now, the World Bank, a prominent international financial institution and an “anti-poverty agency” that primarily gives out substantial loans to subsidize low-income and middle-income developing countries’ governments with the objective of supporting their nations’ capital projects, has released its latest outlook, and it’s not looking good. In fact, both the mentioned countries tried to ask World Bank to bail them out. However, both of them did not meet the stringent requirements of the institution.

World Bank’s Case for a Possible Domino-like Recession

“For many countries, the recession will be hard to avoid,” said David Malpass, World Bank’s president, in the agency’s report. World Bank heavily downgraded its recent prospect for the global economy early this year. It attributed it mainly to the ongoing Ukraine-Russia war.

World Bank forecasted that the world economy would only expand by 2.9% this year, down by 2.8% from the 5.7% reported global growth in 2021 and down by 1.2% from its 4.1% previous forecast before the Ukraine-Russia war. Furthermore, the agency sets a dimmer tone as its outlook for the 2023 and 2024 global economy is only 3% each. Likewise, its growth forecast for emerging and developing economies is only 3.4% this year, down by 3.2% from 6.6% in 2021.

For the two biggest economies, World Bank reduced its growth forecast for the US to 2.5% this year from its previous forecast of 3.7% in January of this year. A possible 3.2% drop from 5.7% growth in 2021. Likewise, for China, the World Bank forecasted its growth to drop to 4.3%, a potential drop of 3.8% from last year’s 8.1%.

Lastly, for the European countries that use the euro currency, the agency downgraded its growth outlook to 2.5% this year from 5.4% last year and from the 4.2% it had initially forecasted in January.

The Worst Might Be to Come

The World Bank warned that a “stagflation,” a combination of sluggish growth and high inflation, could be on the horizon as widespread food shortages become a significant problem for many developing countries.

“Additional adverse shocks will increase the possibility that the global economy will experience a period of stagflation reminiscent of the 1970s [energy and food prices shocks].’’ the agency concluded in its most recent Global Economic Prospects Report as it forecast oil prices to surge 42% this year and for the rest of commodity prices to climb around 18%.