Good morning, everyone. Thanks for joining.
I want to highlight a few messages from our latest Global Economic Prospects report and take questions. At the outset, let me thank Ayhan Kose and his team for all their work on this.
The new GEP cuts forecasts for the global economy and emerging markets. Global economic activity is expected to slow to 2.9 percent in 2022 amid surging inflation, rising interest rates, and the war in Ukraine. This forecast is close to one-third lower than the January forecast of 4.1 percent.
Several years of above-average inflation and below-average growth now seem likely. The path will depend heavily on supply decisions taken now, especially for energy; and on central bank policies to encourage business investment as interest rates normalize.
The growth forecast for emerging market and developing economies (EMDEs) this year has been lowered to 3.4 percent (from 4.6 percent expected in January 2022). In this latest GEP, forecasts for 2022 growth have been revised down in nearly 70 percent of EMDEs compared to the January release.
The risk from stagflation is considerable, with potentially destabilizing consequences for low- and middle-income economies. In 2022, the level of EMDE per capita income will be nearly 5 percent below its pre-pandemic trend. Subdued growth will likely persist throughout the decade because of weak investment in most of the world. GEP has a special focus note on the risks of stagflation, including comparisons to the 1970s.
For many countries, recession will be hard to avoid. With the supply of natural gas constrained in poorer countries for use in fertilizer, farming, and electricity grids, announcements of major production increases will be essential for restoring non-inflationary growth. The GEP presents downside risks. If they materialize, we could even see global growth fall to 2.1 percent in 2022 and 1.5 percent in 2023. If so, on a per capita basis, growth would fall close to zero.
In this extraordinary era of overlapping global crises, policymakers need to focus their efforts in five key areas to respond to the crises and improve the outlook for developing countries:
- First, limit the harm to people directly affected by the war in Ukraine.
- Second, actively counter the spike in oil and food prices. As Europe realigns its energy supply away from Russia and absorbs new resources from around the world, it reduces the availability of energy, electricity, and food elsewhere. This makes new energy and food production an imperative for both Europe and the world. Markets are responsive to supply, and they look forward, so increases in estimates of future supply would help reduce current prices and inflation expectations.
- It’s also crucial to avoid export and import restrictions and subsidies that magnify the rise in prices and distort markets. In the poorest nations – those at greatest risk from shortages of fertilizer and food – targeted social safety nets and cash transfers need to be buttressed. This supports the vulnerable and helps countries avoid more costly subsidies and price controls.
- Third, step up debt-relief efforts. Debt vulnerabilities were acute for low-income countries even before the pandemic. As debt distress spreads to middle-income countries, the danger is growing. Debt relief needs to be rapid, comprehensive, and sizable in order to avoid deeper crises and allow recovery.
- Fourth, strengthen health preparedness and efforts to contain COVID-19. Expanding immunization efforts in low-income countries, including COVID-19 vaccinations, must be a high global priority.
- Fifth and final, among these overlapping crises and policy priorities, we need to effectively address climate change as a continuing challenge. It requires massive investments in cleaner energy, energy efficiency, and electricity grids and transmission. Gas flaring, methane leakage, and the operation of antiquated coal-fired power plants, with severe health and environmental impacts, continue with little abatement.
I’ll leave you with two sobering points. First, the energy tradeoffs made in Europe will have major consequences for developing countries. Already, the high price of liquified natural gas (LNG) is causing reduced crop yields and an increased use of coal, diesel, and heavy fuel oil. Investments need to be made now to stop this shift into more carbon-intensive fuels.
Second, many developing countries are facing instability and severe shortages of capital. They’ve been left behind by COVID-19, the global response to the pandemic, inflation, and now by the policy response to inflation. As policy accommodation is removed in the advanced economies, inequality is deepening rapidly. The GEP outlook is for these global divides to persist.
I’m happy to take your questions.