In January, the international financial institution forecasted 4.1% economic growth for this year. In light of elevated inflation, lockdowns in China, the Russian invasion of Ukraine, and other phenomena, the World Bank revised its 2022 forecast to 2.9%.
“Many countries will have a hard time avoiding a recession,” World Bank President David Malpass said on Bloomberg TV. “The downside risk is that it could be a global recession. One of the key variables is whether supply comes back online in order to add growth and slow down the inflation rate. But this is the sharpest slowdown in 80 years.”
The World Bank compared global economic conditions to those witnessed in the 1970s — including supply-side issues causing inflation to soar and aggressive stimulus from central banks in advanced economies. One cause for optimism, however, is many central banks’ subsequent development of strong commitments to low and stable inflation rates.
“Global inflation is expected to moderate next year but it will likely remain above inflation targets in many economies,” the World Bank said. “If inflation remains elevated, a repeat of the resolution of the earlier stagflation episode could translate into a sharp global downturn along with financial crises in some emerging market and developing economies.”
In the United States, economic growth contracted at a 1.5% annualized rate during the first quarter of 2022, according to the Bureau of Economic Analysis, which associates recessions with two consecutive quarters of negative growth. Several prominent American business leaders recently expressed their concerns about a looming recession, and many technology companies — including Microsoft and Tesla — have initiated pauses to hiring or announced layoffs.
“You know, I said there’s storm clouds but I’m going to change it… it’s a hurricane,” JPMorgan Chase CEO Jamie Dimon said last week. He added that no one knows if the hurricane is “a minor one or Superstorm Sandy.”
“Right now, it’s kind of sunny, things are doing fine, everyone thinks the Fed can handle this,” Dimon added. “That hurricane is right out there, down the road, coming our way.”
Consumer sentiment is collapsing amid the economic headwinds. According to a poll conducted by The Wall Street Journal and the University of Chicago’s National Opinion Research Center (NORC), 83% of respondents described the state of the economy “as poor or not so good.” Meanwhile, 35% said they are not “satisfied at all with their financial situation” — the highest level since the poll began in 1972.
Last week, the Bureau of Economic Analysis revealed that Americans are spending beyond their means to cover their expenses as inflation outpaces gains in income. Households saved a slim 4.4% of their after-tax income in April — the lowest level seen since 2008. Meanwhile, Federal Reserve data indicate that credit card balances and similar types of debt soared at a 35.3% annualized rate in March — the fastest one-month surge since 1998.
Indeed, nearly half of American adults are now “changing how they shop for groceries,” including “opting for cheaper items, avoiding brand names and buying only the essentials” amid the rising price levels, according to a quarterly survey from BMO and Ipsos.