July 7, 2022

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Show at the heart of the solution against stagflation, David Malpass*

David Malpass

According to the latest World Bank projections, global growth is expected to slow by 2.7 percentage points between 2021 and 2024—a slowdown more than double what was recorded between 1976 and 1979. To avoid a prolonged period of stagflation, political leaders around the world should The world focus their efforts on five main goals.

Just over two years later global recession (a) Due to the COVID-19 pandemic, the worst since World War II, the global economy is once again threatened, this time by the dual phenomenon of high inflation and low growth. Even if a global recession is avoided, stagflation can have lingering effects for several years , with potentially destabilizing consequences for low- and middle-income countries. Unless the supply is increased significantly.

In a context marked by war in Ukraine, accelerating inflation and rising interest rates, global economic growth is expected to decline in 2022. The latest forecasts from the World Bank, Posted today, reflects a significant deterioration in the outlook: a sharp slowdown in global growth is expected this year, falling from 5.7% in 2021 to 2.9%. This number also represents a decrease of about a third compared to January 2022 forecastWhich forecast growth of 4.1% this year. This downward adjustment is mainly due to the sharp rise in energy and food prices, along with turbulence (a) Supply and trade resulting from the war in Ukraine and the necessary normalization of interest rates just beginning.

The COVID-19 pandemic has already brought about big hit Income growth and poverty reduction in developing economies. Repercussions of the war in Ukraine Highlighting Challenges (a) For many of these countries, which should achieve 3.4% overall growth in 2022. This is barely half the rate recorded in 2021 and well below the average observed between 2011 and 2019. Similarly, projections of Growth on average – income countries in 2022 were significantly reduced, losing 1.3 percentage points from the January forecast.

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Real per capita income in 2023 will remain below its pre-COVID-19 level in about 40% of developing economies. For many countries, the Recession It will be difficult to avoid. with restrictionsnatural gas supplywhich particularly affects fertilizer production and power grids in the poorest countries, announcing strong increases in world production will be necessary to restore non-inflationary growth.

The risk of sustained above-average inflation and below-average growth for several years – a phenomenon not seen since the 1970s – is great (a) . Global growth is expected to slow by 2.7 percentage points between 2021 and 2024 – a slowdown more than double what was recorded between 1976 and 1979. It is likely to remain sluggish over the next decade due to lower investment in most parts of the world. knowing thatinflation (a) It has now reached multi-decade highs in many countries and the expansion in supply is likely to be slow, and the pace of price growth is likely to remain higher for longer than is currently expected.

Moreover, the external public debt (a) Developing economies are now at record levels. Most of this debt is owned by private creditors, and most of it comes at variable interest rates that can rise sharply. With the tightening of global financing conditions and the devaluation of currencies, Over-indebtednesswhich was previously confined to low-income countries, is spreading to middle-income countries.

The end of accommodative monetary policy in the United States and other advanced economies, along with the consequent increase in global borrowing costs , is another major detrimental factor for the developing world. In addition, in the next two years, the majority of budget support (a) that were put in place in 2020 to combat the pandemic will have been removed, although debt levels will remain high. With the end of accommodative policies, it will be important to reduce inequality and seek higher incomes for all by using fiscal and monetary policy tools that strengthen supply chains, small businesses, and the process of allocation of capital.

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But the current conditions are also present Big differences from the 1970s (to me). The dollar, which was very weak in the seventies, is strong (To today. While they had quadrilateral (a) in 1973-1974 and Double (a) in 1979-80, and oil price (a) It is today only two-thirds of its 1980 level (adjusted for inflation). The balance sheets of major financial institutions are also generally strong, while they were fragile in the 1970s.

And economies in general are more resilient than they were in the 1970s, with less structural rigors in wages and labor markets, while political leaders are in a better position today to fend off stagflation. Monetary policy frameworks are more credible: central banks in advanced economies, such as those in many developing countries, have price stability state clearly defined. This factor, combined with the fact that existing technology and capital can lead to an exponential increase in supply, has helped solidify long-term inflation expectations.

To reduce the risks of stagflation, world leaders will need to take targeted action. In this extraordinary time of overlapping global crises, leaders everywhere will need to focus their efforts on five critical goals.

  • First, they will have to limit the damage to those affected by the war in Ukraine. This will require coordinating responses to the crisis, including providing emergency food, medical and financial assistance in war-torn areas, burden-sharing housing, support, and even resettlement of refugees and internally displaced persons.
  • Second, political leaders will have to fight to rise (a) Oil and food prices. It is necessary to increase the supply of basic food and energy products. Markets anticipate that simple announcements of future supply will help lower prices and inflation expectations. All countries should strengthen their social safety nets and avoid import and export restrictions that drive up prices.
  • Third, there is an urgent need to intensify debt relief efforts. Debt-related vulnerabilities in low-income countries are already very high before the epidemic. while the Over-indebtedness The risks to the global economy are spreading to middle-income countries, and will only increase in the absence of rapid, comprehensive and widespread relief.
  • Fourth, officials should enhance health preparedness and step up efforts to contain COVID-19. L ‘Expand vaccination campaigns (a) Low-income countries should be the world’s top priority.
  • Fifth, the transition to low-carbon energy sources must be accelerated. to relieve Reliance on fossil fuels (a) There will be a need for more investment in electricity networks, cleaner energy sources and improved energy efficiency. National leaders must create climate-smart regulatory frameworks, adjust incentive structures and strengthen land-use rules.
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Restoring long-term prosperity depends on the resumption of stronger growth and a more stable and rule-based political environment. There is good reason to believe that when the war in Ukraine ends, efforts to rebuild Ukraine’s economy and revitalize global growth – including at the level of the World Bank Group – will be intensified. Meanwhile, political leaders must mitigate other threats to global development: rising food and energy prices, persistent inflationary pressures, increasingly dangerous debt burdens, growing inequality and instability, and the many risks arising from climate change.

this is amphitheater Based on the June 2022 edition of the World Bank Group’s Global Economic Prospects.

* President of the World Bank