The entire world is dealing with the fallout of Russia’s invasion of Ukraine while we were all trying to recover from the years-long pandemic. On top of that, we’re experiencing lockdowns in China and supply chain disruptions, affecting all kinds of industries. With a period of weak growth and high inflation, many experts are feeling some deja vu — all the way back to the ‘70s, in fact.
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The last time we faced circumstances like this was back in the 1970s, and the resemblance to what’s occurring now has caused the World Bank to cut its growth forecast for 2022 from 4.1% to 2.9% after its mid-year check in. At this rate, it will be difficult to avoid a recession for many countries.
The World Bank’s global economic prospects (GEP) report was the first systematic attempt to compare current events with history to ascertain if we’re heading for the same end result as back then.
According to the report, the growth slowdown that is set to occur between 2021 and 2024 is on track to be twice that of the period between 1976 and 1979, and that back then, as a way to help recover from high inflation and oil shocks, interest rates were risen, which caused a string of financial crises in emerging markets and developing economies.
Last month, the Bank pledged £9.6bn in an effort to support low-income countries hit hardest by the effects of Russia’s invasion of Ukraine, using their report to justify the need for global and national intervention to prevent the worst consequences such as surging energy and food prices from impacting even more countries than they already have.
The Bank is predicting that growth, after already having been halved from 2021, would be stagnant at 3% in both 2023 and 2024 with the effects of the war rippling to investing and trade and demand from the pandemic as well as policy support waning all contributing to the downturn.
After COVID-19 triggered the worst global recession since world war two, high inflation and slow growth are once again threatening to push many of the world’s economies into yet another one, or even into stagflation — something that could persist for years unless steps are taken to prevent it.