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Russia's invasion is hobbling the global economic recovery from the pandemic, World Bank says

Business Insider US
A worker looks out of a nearly empty restaurant in New Rochelle, New York on March 11, 2020.
  • The World Bank lowered its forecast for global economic growth on Monday, citing Russia's invasion of Ukraine.
  • The organization sees growth hitting 3.2% in 2022, down from the January estimate of 4.1%.
  • The firm also projected a 4.1% contraction in Europe and Central Asia due to soaring food and energy prices.
  • For more stories visit www.BusinessInsider.co.za

The economic recovery from the pandemic was already expected to slow as markets and supply chains around the world gradually returned to normal, but Russia's invasion of Ukraine is hitting the brakes harder than economists expected just months ago.

The World Bank slashed its forecast for global growth on Monday, citing the conflict in Ukraine and its sweeping effects on inflation, supply chains, and financial-sector stress. The organisation now sees global economic output rising 3.2% through 2022, President David Malpass said Monday, according to Reuters. That's down from the 4.1% forecast the bank's economists shared in January.

If the projection comes to fruition, growth will be around half the 5.7% pace seen through 2021. While global gross domestic product has already rebounded from the lows of the coronavirus recession, the recovery has been uneven.

Advanced economies led the way by unleashing unprecedented government stimulus and historically low interest rates. Developing countries, however, lacked the same tools for buoying their economies and have generally recovered at a much slower clip. The Delta and Omicron waves saw similar divergences, as vaccine rollouts have also been uneven.

The World Bank even sees the European and Central Asian economies shrinking 4.1% through the year, Reuters reported. The contraction — which the organisation sees as the biggest factor dragging on overall global growth — is mostly tied to the conflict in Ukraine and its effects on inflation.

The war has already boosted prices for a range of crucial commodities including oil, wheat, fertilizer, and natural gas. The uptick in prices has raised concerns that, in order to cool inflation, central banks will slow major economies too aggressively and spark new recessions.

Along with the weaker economic forecasts, Malpass also proposed a 15-month aid plan of $170 billion (R2.5 trillion) to counter war-related economic stresses. The organisation aims to dole out $50 billion (R736 billion) of the funds over the next three months.

"This is a continued, massive crisis response given the continuation of the crisis," Malpass said, according to Bloomberg.

The announcement comes days before the World Bank holds a spring meeting that's expected to address inflation, food insecurity, and other economic pressures linked to the invasion.

The World Bank's latest estimates join others bracing for a weaker recovery in the months ahead. Federal Reserve policymakers lowered their US growth forecast in mid-March, linking the bleaker outlook to the invasion and sky-high inflation. Wall Street giant Deutsche Bank went one step further in early April, lowering its growth estimates and predicting the US will slide into a recession by the end of 2023.

The World Bank's latest estimates still see the world economy avoiding a recession. But with the war pushing forward and inflation running at the highest levels in decades, downside risks abound. 

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