Nearing Global Disaster

Nearing Global Disaster

The latest hunger rate in the country was tagged at 2.3 points above the 9.5 percent registered which means some 2.2 million families went hungry this month of June. (Photo: PhilStar Global)

We cannot stop natural disasters but we can arm ourselves with knowledge: so many lives wouldn’t have to be lost if there was enough disaster preparedness.

— Czech supermodel Petra Nemcova

Czech supermodel Petra Nemcova

BURSTING our bubble of hope following the slow opening of the economy, the World Bank (WB) has issued a warning that the global economy may be headed for years of weak growth and rising prices—a veritable toxic combination that will test the stability of dozens of countries that are still struggling to rebound from the ongoing coronavirus pandemic.

According to the former undersecretary of the United States Treasury for International Affairs and current WB president David Malpass, “not since the 1970s—when twin oil shocks sapped growth and lifted prices, giving rise to the malady known as ‘stagflation’—has the global economy faced such an ominous challenge.

The bank has actually slashed its annual global growth forecast to 2.9 percent from January’s 4.1 percent, saying that “subdued growth will likely persist throughout the decade because of weak investment in most of the world.”

Aside from the pandemic, the fallout from Russia’s invasion of Ukraine has aggravated the global slowdown by driving up prices for a range of commodities, fueling inflation. So it has been predicted that global growth in the current year will be roughly half of last year’s annualized rate and is expected to show little improvement in succeeding years until 2024.

In fear, the World Bank claims that this will be the sharpest slump after an initial post-recession rebound that the global economy has suffered in more than 80 years and it adds that the situation could get even worse if the Ukraine war fractures global trade and financial networks or soaring food prices spark social unrest in importing countries.

There is truth in Malpass’ statement that “the risk from stagflation is considerable with potentially destabilizing consequences for low- and middle-income economies. There is a severe risk of malnutrition and of deepening hunger and even famine in some areas and if the worst outcomes materialize, global growth over the next two years could fall “close to zero.”

The WB chief remarked that with few exceptions, the economic outlook of the world is deeply troublesome.

After three years of the pandemic, the global economy has been hit by what has been labeled as ‘overlapping crises’—fallout from the war in Ukraine, recurring coronavirus lockdowns affecting Chinese factories, and the highest inflation rates in decades.

But for now, the greatest areas of concern lie beyond borders as a recession in Europe has become a real possibility with the continent struggling to accommodate millions of Ukrainian refugees and deal with upheavals in energy markets. Elsewhere, the interruption of grain exports via the Black Sea is hurting countries such as Lebanon, Egypt, and Somalia. China is suffering from its rigid zero-covid policies and battling costly property market weakness.

The global ‘stagflation’ threat could have particularly dire effects in developing countries like the Philippines, where per-person income has remained nearly 5 percent below pre-pandemic levels.

Major banks cut off the financing as they sought to negotiate new payment plans, plunging the country into a ‘lost decade’ of anemic growth. To date, the Philippines owe a record amount to foreign banks and other financial institutions. One-quarter of our country’s debt burden now carries variable interest rates, up from 11 percent in 2010. So as inflation-fighting central banks tighten credit, repayment costs will rise for cash-strapped borrowing nations.

But it’s not only poor countries that will be gravely affected, even the world’s top economies will not escape damage. Bank economists now expect the United States to grow this year by just 2.5 percent, down from the 3.7 percent rate they projected in January. China, the world’s second-largest economy, will fall short of the government’s annual growth target, expanding by 4.3 percent. That would be Beijing’s worst full-year figure since 1990, excluding 2020 when the pandemic depressed activity.

Investors also could take a beating from a repeat of ‘70s-style stagflation. The S&P 500 stock index, already down more than 13 percent this year, could lose an additional 20 percent or more, according to a recent client note from Bank of America.

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