5 Reasons Why a Global Recession Is Inevitable for the President of the World Bank.
It's only a matter of time, according to David Malpass.
Speaking at the US Chamber of Commerce in late May 2022, World Bank President David Malpass was not very optimistic about the global economy in the months ahead:
“If you look at global GDP, it's hard to see how we could avoid a recession.”
While David Malpass does not indicate when global GDP will start to decline, he does point out the obvious reasons that lead him to make this less than exciting prediction.
At the root is the war in Ukraine and its impact on energy prices, food and fertilizer prices, and availability:
“The idea that energy prices double is enough on its own to trigger a recession. From a certain point, the prices of fuel, electricity, or gas are so high that they will reduce demand, and people or companies will circulate less, produce less, and consume less, which causes a slowdown in economic activity. And, therefore, growth.”
The President of the World Bank is not in a position to give a numerical estimate of the extent of the recession, but he points to the 5 reasons why the world is heading straight for it:
The German economy, the fourth largest in the world, is slowing down. It narrowly avoided a decline in the first quarter of 2022, recording 0.2% GDP growth, compared to the fourth quarter of 2021. That fourth quarter, compared to the third, was down 0.3%. For Malpass, the reason behind this slowdown is the rise in energy prices.
Ukraine and Russia will experience a severe contraction of their economies due to the war between them since late February 2022.
In Europe and the United States, growth will slow down towards stagflation.
Developing countries will be the hardest hit, according to David Malpass, as they are even more vulnerable to rising energy, fertilizer, and food prices, and to the fact that the latter two items are less available.
Growth in China will also slow, sharply, because of the COVID-19 pandemic, inflation, and the crisis in the real estate sector.
A dangerous cocktail that has been building up for several weeks now. And the different ingredients of the cocktail are likely to intensify further: the war has no real quick end in sight. Russia is blocking Ukrainian wheat exports on the Black Sea, which could lead to a major world food crisis.
Europe wants to do without Russian gas and oil, but it is a headache to gather all the necessary resources - resources that other countries in the world also want to take advantage of, which may further increase prices.
The energy supply may also simply be interrupted by Vladimir Putin: this option is always hanging over the market. For the coming winter, Europe wants to have filled its gas reserves to avoid another price hike, but will it manage to do so in time? In the meantime, Moscow is counting the bills. Only its exports of Russian gas to Europe bring in 200 million euros every day!
Final Thoughts
All these elements continue to weigh on the economies of the various countries and the world economy. In April, the World Bank lowered its estimate of the world GDP growth rate for the year 2022 from 4.1 to 3.2%. The words of the World Bank president suggest that the next estimate will be even more gloomy.
His speech to the US Chamber of Commerce was probably intended to prepare the ground for even more pessimistic predictions that will be published in a few weeks by the World Bank.
Some reading
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