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World Bank slashes global economic growth forecast

Many countries likely to slip into recession to Ukraine crisis, supply chain disruption, David Malpass says

The World Bank on Tuesday slashed the global economic growth forecast for 2022 due to the Russia-Ukraine war and supply chain disruption, with many countries likely to slip into recession.

The financial institution estimates 2.9 per cent growth for the global economy for this year, which is 1.2 percentage points below its January forecast. Global growth is expected to slump from 5.7 per cent in 2021 to 2.9 per cent in 2022.

The economy is “expected to hover around that pace over 2023-24, as the war in Ukraine disrupts activity, investment, and trade in the near-term, pent-up demand fades, and fiscal and monetary policy accommodation is withdrawn,” said Global Economics Prospects report released on Tuesday.

“The war in Ukraine, lockdowns in China, supply-chain disruptions, and the risk of stagflation are hammering growth. For many countries, the recession will be hard to avoid,” said David Malpass, president of the World Bank Group.

“Markets look forward, so it is urgent to encourage production and avoid trade restrictions. Changes in fiscal, monetary, climate and debt policy are needed to counter capital misallocation and inequality,” he said.

It said the world economy is expected to experience its sharpest deceleration following an initial recovery from global recession in more than 80 years.

World Bank warned that the pandemic and war in Europe raise the risk of stagflation, with potentially harmful consequences for middle- and low-income economies alike.

It cautioned that inflation is expected to moderate next year worldwide but it will likely remain above inflation targets in many economies. The report notes that if inflation remains elevated, a repeat of the resolution of the earlier stagflation episode could translate into a sharp global downturn along with financial crises in some emerging markets and developing economies.

The report projected a sharp deceleration in growth of advanced economies from 5.1 per cent in 2021 to 2.6 per cent in 2022 — 1.2 percentage points below projections in January. Growth is expected to further moderate to 2.2 per cent in 2023.

For emerging market and developing economies, growth is also projected to fall from 6.6 per cent in 2021 to 3.4 per cent in 2022—well below the annual average of 4.8 per cent over 2011-2019.

UAE: Sustained growth in 2023-24

The UAE economy is projected to grow 4.7 per cent this year and at a sustainable growth rate over the next two years, benefiting from the high crude oil prices and production level.

The global financial institution projected 3.4 per cent and 3.6 per cent growth for UAE in 2023 and 2024, respectively.

The UAE Central Bank earlier this week projected 5.4 per cent growth for 2022. The Emirates’ current account surplus increased from Dh77.5 billion in 2020 to Dh176.2 billion in 2021, as a result of the increase in oil and non-oil exports, in addition to a rise in the surplus in the balance of services.

“The UAE should also benefit in the near term from rising oil prices, while in the medium term, reforms to deepen capital markets, increase labour market flexibility, and accelerate technological innovation will support growth,” World Bank said.

Among GCC oil exporting countries, which also tend to have higher vaccination rates, higher oil prices and rising production have assisted in maintaining robust rebounds, partly offset by higher food prices and borrowing costs. The Gulf countries’ daily oil production was about three million barrels higher than a year ago in April, World Bank said.

For the Mena region, World Bank projected average growth of 5.3 per cent in 2022, its fastest pace in a decade, but growth will slow abruptly in 2023 and 2024 across the region.

“The current rebound is due mainly to strong growth in oil exporters boosted by rising oil revenues and a general waning of the pandemic’s adverse impacts in highly vaccinated countries. GCC economies are forecast to grow by 5.9 per cent in 2022, 1.2 percentage points higher than forecast at the start of the year,” it said.