World Bank’s Malpass sees stagflation risk, possible recession in Europe

WASHINGTON—World Bank President David Malpass said Wednesday that it could take years for global energy production to diversify away from Russia after the invasion of Ukraine, risking stagflation, or low growth. He warned that the period of high inflation could be prolonged.

Malpass said in a speech at Stanford University that while a recession is more likely in Europe, China’s growth has slowed sharply and U.S. economic output has contracted in the first half of this year. .

These developments will have grave consequences for developing countries, Malpass said, citing “consequential” and “worse” challenges facing development.

Malpass said the current “perfect storm” of rising interest rates, high inflation and slowing growth will require new macroeconomic measures, including more targeted spending and initiatives with clear messages to increase supply. He said economic and microeconomic approaches are needed.

Malpass said the bank’s forthcoming Poverty and Shared Prosperity report will show that decades of progress in poverty reduction slowed even before the COVID-19 pandemic, with an additional 70 million people dying by 2015. have fallen into extreme poverty.

A report due next week will also show that average global income has fallen by 4%, the first decline since banks began measuring the measure in 1990, he said.

“Developing countries face a very challenging near-term outlook shaped by sharply rising food, fertilizer and energy prices, rising interest rates and credit spreads, currency depreciation and capital outflows,” Malpass said. said.

“The immediate danger for developing countries is that a sharp slowdown in the global economy will evolve into a global recession,” he said, noting that many of these countries will not return to pre-pandemic per capita income levels. I mentioned that I am still struggling with

Malpass said it was unclear whether there would be enough global capital to meet the needs of developed countries with fiscal policies that prioritized higher debt levels, and to finance the investment needs of developing countries. He said it was unclear whether there would be sufficient funds left for the

He urged countries to explore ways to curb inflation beyond the highly synchronized rate hikes currently underway. This includes increasing fiscal efficiency to better focus spending on the poor and vulnerable.

Such an adjustment would improve global capital allocation and provide a path to resume median income growth while containing inflation, he said.

Andrea Shalal