Finance & Economics

Developing countries face fierce economic headwinds: World Bank

The head of the World Bank warned that the risk of a global recession is an extremely challenging scenario for poorer nations and their development

global recession

Developing countries face fierce economic headwinds: World Bank. Source: flickr.com

Speaking at Stanford University, the chief of the World Bank David Malpass said that a looming global recession presents an immediate danger to developing nations. They already face challenges of higher food, fertilizer and energy prices caused by Russia’s invasion of Ukraine. Continuing stagnation goes along with rising interest rates, currency depreciation and capital outflows. All of that could result in a shortage of funds needed to support the developing economies.

Policies adopted by advanced economies to address inflation and economic slowdown imply heavy absorption of global capital by advanced governments. At the same time, emerging economies would lack the capital needed to spur growth and sustain well-being. Many were already struggling with large debts due to the pandemic-linked economic downturn. Moreover, emerging-market and developing economies heavily rely on imported fuel and commodities that are getting more and more expensive. According to Malpass, the human consequence of these overlapping crises will be catastrophic. 

The World Bank chief noticed that underinvestment in the developing world started after the 2008 global financial crisis. As advanced economies shifted to so-called “easy-money” policies (zero interest rates and massive bond purchases), investments in developing countries gradually deteriorated. This year, yields on emerging-market debt have also soared as investors desert them for “safer” assets. Sri Lanka, Pakistan, Egypt, and Argentina have already turned to the IMF for help. 

Current economic pressures take their toll across the globe. It is estimated that the war in Ukraine will bring global economic losses of $2.8 trillion by the end of next year. World Bank economists forecast that the global economy would likely grow 2.9% this year, down from 5.7% in 2021. The growth will slow further to 2.4% next year, before recovering to 3% in 2024.

SEE ALSO:

U.S. Dollar Rise Threatens Global Economies

Fed Signals Recession May Be a By-Product of Crushing Inflation

How to Optimise the Corporate Budget Before Recession

Nina Bobro

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Nina is passionate about financial technologies and environmental issues, reporting on the industry news and the most exciting projects that build their offerings around the intersection of fintech and sustainability.