The World Bank has slashed Malawi’s GDP growth projection for 2022 from 3 percent to 2.1 percent.
The slashed growth projection is contained in the bank’s Global Economic Prospects June 2022 released on Tuesday.
The new projection is 1.9 percentage points below the 4 percent growth projection indicated by government in the 2022-23 national budget.
Initially the bank had predicted in the December 2021 Malawi Economic Monitor that the local economy would swell by three percent.
But since then, the local economy has been hit by two devastating tropical storms, Anna and Gombe which have affected crop production and crippled power production.
The economy has also felt the full effect of the Russian invasion of Ukraine which has driven up fuel and food prices to new records.
The Global Economic Prospects the world economy continues to suffer from a series of destabilizing shocks.
It says compounding the damage from the Covid-19 pandemic, the Russian invasion of Ukraine has magnified the slowdown in the global economy, which is entering what could become a protracted period of feeble growth and elevated inflation.
This, the report says, raises the risk of stagflation, with potentially harmful consequences for middle- and low-income economies alike.
Global growth is expected to slump from 5.7 percent in 2021 to 2.9 percent in 2022 significantly lower than 4.1 percent that was anticipated in January. It is expected to hover around that pace over 2023-24, as the war in Ukraine disrupts activity, investment, and trade in the near term, pent-up demand fades, and fiscal and monetary policy accommodation is withdrawn.
As a result of the damage from the pandemic and the war, the level of per capita income in developing economies this year will be nearly 5 percent below its pre-pandemic trend.
World Bank Group President David Malpass said the war in Ukraine, lockdowns in China, supply-chain disruptions, and the risk of stagflation are hammering growth.
“For many countries, recession will be hard to avoid.
Markets look forward, so it is urgent to encourage production and avoid trade restrictions. Changes in fiscal, monetary, climate and debt policy are needed to counter capital misallocation and inequality,” Malpass said.
The June Global Economic Prospects report offers the first systematic assessment of how current global economic conditions compare with the stagflation of the 1970swith a particular emphasis on how stagflation could affect emerging market and developing economies.
World Banks Prospects Group Director, Ayhan Kose, said developing economies will have to balance the need to ensure fiscal sustainability with the need to mitigate the effects of todays overlapping crises on their poorest citizens.
Communicating monetary policy decisions clearly, leveraging credible monetary policy frameworks, and protecting central bank independence can effectively anchor inflation expectations and reduce the amount of policy tightening required to achieve the desired effects on inflation and activity,” Kose said.
Finance Minister Sosten Gwengwe was not immediately available for comment.