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The World Bank has predicted that there is a high chance of recession. President David Malpass said that a hard to avoid economic downturn will happen and that a “recession will be hard to avoid.”
Central banks and Wall Street analysts have been warning about an upcoming economic downturn for some time now. The latest to sound the alarm is Malpass.
Business owners have also come to the same realization. Tesla CEO Elon Musk earlier said that he has a “super bad feeling” about the economy, while Jamie Dimon of JPMorgan Chase predicts an economic “hurricane.”
Malpas explains that there are several factors that contribute to the worsening economy; these include “the war in Ukraine, lockdowns in China, supply-chain disruptions and the risk of stagflation.”
The 1970s and 1980s were a time of extreme stagflation, with the economy experiencing a major recession. It is possible, experts fear, that the U.S. could see something similar if recent economic trends continue.
The economic term “stagflation” refers to a period of slow growth and high inflation.
The Federal Reserve has come forward with a plan to combat inflation, but it is not enough. The initiative from the Feds came too late because investors believed that banks might already be thinking of declaring recession.
The Federal Reserve’s decision to increase interest rates has caused a sharp rise in bond yields, which may cause problems for the Treasury. Meanwhile, the housing market is also affected by the rise in mortgage rates.
Businesses have been struggling lately as prices of commodities and raw materials have increased, topped with the echoing calls for higher wages from employees.
The World Bank’s fear is due to the slowing of growth – now at 2.9% this year. The projection is a big decline from the 5.7% last year and a steep difference from the prior forecasts, which put it at 4.7%.
The World Bank said, “The recovery from the stagflation of the 1970s required steep increases in interest rates in major advanced economies, which played a prominent role in triggering a string of financial crises in emerging market and developing economies.”
The World Bank has released a report stating that they do not think there will be any improvement in the economies around our globe for at least another year.
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