World Bank stokes fears of stagflation for years to come

Forecasts for global growth slashed as the Us-based financial institution warns of broad food shortages

THE World Bank warned of a “protracted period of feeble growth and elevated inflation” as it slashed its forecast for GDP expansion this year.

Global growth will be just 2.9pc this year, “significantly lower” than the 4.1pc expansion predicted in January amid a storm of geopolitical pressures, the Washington-based group said in a report yesterday.

Advanced economies will experience an even sharper decline, with annual growth of 2.6pc versus the 3.8pc predicted at the start of the year. The World Bank said Russia’s economy will slump 8.9pc as Western sanctions bite.

“Even if a global recession is averted, the pain of stagflation could persist for several years — unless major supply increases are set in motion,” it said in its latest Global Economic Prospects report.

It warned there could be further disruption to the production of food and fertiliser “leading to widespread food shortages, pushing millions of people into food insecurity and extreme poverty”.

The report added that central banks could be forced to tighten policy more quickly in response to rising inflation.

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

He said governments would need to rapidly respond to staunch the damage from the conflict on Europe’s eastern border and the end of the post-pandemic economic boom.

Mr Malpass said: “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.”

The World Bank told governments to redirect spending towards targeted relief for the poorest, saying that “distortionary policies” such as price controls, subsidies and export bans could worsen recent increases in commodity prices.

That warning was echoed by the International Monetary Fund, which said in a blog post yesterday that channelling support to vulnerable households is “ultimately less costly than keeping prices artificially low for all irrespective of their ability to pay”.

“Limiting the price pass-through is not always the best approach,” wrote analysts at the Paris-based group.

It came as UK Finance warned that rising interest rates mean British mortgage borrowers will suffer a squeeze on living standards almost twice as big as that facing the average household.

The combination of rising bills and higher taxes along with borrowing costs mean homeowners with a loan will see their real disposable incomes drop by 3pc this year, the industry group said.

By contrast, the Bank of England expects real post-tax household disposable incomes to drop by 1.75pc this year for the typical family.

UK Finance said the situation is worst for those on lower incomes, as rising bills and higher interest rates take up a higher share of their spare cash.

Those who took out a mortgage with a post-tax income of below £20,000 can expect the spare cash left after basic household spending and mortgage payments to fall from around 27pc of their cash earnings to 23.5pc.

For those with earnings of more than £100,000, on the other hand, the fall in their available spending power from 54.5pc to 52.6pc will be less painful.