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To the swelling chorus of recession alarmists, the World Bank can now be added. “For many nations, a recession will be hard to avoid,” said World Bank President David Malpass in his new outlook.
Malpass joins a growing number of Wall Street executives 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 “storm,” while Elon Musk of Tesla (TSLA) expressed concern about the economy.
What’s causing all this doom and gloom? “The crisis in Ukraine, Chinese lockdowns, supply-chain disruptions, and the possibility of stagflation are hampering growth,” Malpass said in the World Bank’s newest outlook released on Tuesday.
Stagflation, or slow economic growth combined with rising prices, has recently become a prominent concern. Experts and older customers compare the current pattern to the late 1970s when an oil shock and a slow economy caused two recessions in the early 1980s, known as a “double-dip recession.”
The Federal Reserve is boosting interest rates rapidly to attempt to cool surging prices, which has investors concerned. However, some believe the Fed began its anti-inflation drive too late. As a result, the central bank risked triggering a recession as it rushed to catch up with future rate hikes.
Longer-term Treasury bond yields have already risen this year in response to the likelihood of increased short-term rates from the Fed. In addition, mortgage rates have also increased, raising fears that the housing market may slump significantly.
Businesses are also dealing with rising commodity and salary prices and the possibility of increasing borrowing rates harming their bottom lines.
When you add it all together, it’s clear why the World Bank is becoming increasingly concerned. The International Monetary Fund now forecasts that the global economy will grow at only 2.9 percent this year on an annualized basis. This is a significant drop from last year’s 5.7 percent growth rate and the World Bank’s 4.1 percent growth prediction for 2022.
“The recovery from the stagflation of the 1970s 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,” according to the World Bank’s new prediction.
The World Bank does not anticipate a significant improvement soon. Instead, it predicted that global GDP will “hover around” 2.9 percent in both 2019 and 2024, describing the next years as “a prolonged period of sluggish growth and excessive inflation.”
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