WASHINGTON: The global economy risks falling into a harmful period of 1970s-style “stagflation,” sparked chiefly by Russia’s invasion of Ukraine, the World Bank warned on Tuesday as it slashed its annual growth forecast.

The toxic combination of weak growth and rising prices could trigger widespread suffering in dozens of poorer countries still struggling to recover from the upheaval of the Covid-19 pandemic.

The stark forecast came as the international development lender cut its global growth estimate to 2.9 per cent, 1.2 percentage points below the January forecast, due to the severe downturn caused by the war.

“The risk from stagflation is considerable with potentially destabilising consequences for low and middle income economies,” World Bank President David Malpass told reporters.

“For many countries recession will be hard to avoid.” And if risks to the outlook materialise, global growth could slow even more sharply — triggering a worldwide recession, Malpass warned.

The bank’s Global Economic Prospects report said the Ukraine war is compounding the damage from the pandemic and magnifying the slowdown in the global economy, “which is entering what could become a protracted period of feeble growth and elevated inflation.”

The slump comes after growth recovered to 5.7pc in 2021 following the pandemic downturn — marking the “sharpest deceleration following an initial recovery from global recession in more than 80 years.”

The report notes similarities to the 1970s when growth stalled and inflation skyrocketed with supply factors fueling price hikes and following a long period of low interest rates.

Published in Dawn, June 8th, 2022