Path Forward: World Bank Head Sees Recession Likely as Economic Woes Mount

In this week’s Path Forward event, U.S. Chamber President and CEO Suzanne P. Clark met with World Bank Group President David Malpass to discuss the global economy, inflation, and supply chain issues.

Path Forward, a U.S. Chamber of Commerce Foundation event series, helps business and community leaders find the answers they need to navigate a post-pandemic world.

Inflation, War, and Energy Constraints: Multiple Headwinds Hit Global Economy at Once

Clark started the discussion by pointing out the many economic challenges that are occurring at the same time.

“Russia’s brazen and unprovoked war in Ukraine has cost thousands of innocent lives, sparked an international energy crisis, and raised the specter of a global food crisis,” Clark said. “From record-high inflation to supply chain bottlenecks, worker shortages and more, the uncertainty and instability facing businesses has only increased in recent months.”

Malpass said that although future economic performance is notoriously hard to predict, all these headwinds are adding up.

“It’s hard right now to see how we avoid a recession,” he said.

Energy Prices, Inflation, and COVID Lockdowns Have Outsize Impact on Developing Countries

Higher energy prices, inflation, and COVID lockdowns in China are combining to have a huge impact on developing nations, some of which were vulnerable even before the pandemic began, Malpass said.

“We’ve been worried about the increasing fragility in the world,” Malpass said. “If you say people on the lower-income scale are going to have less access to vaccines, to capital, to fertilizers, to food…That adds to fragility, it’s inequality that’s been growing even prior to COVID.”

In response to the COVID pandemic, the World Bank Group deployed more than $157 billion to alleviate health, economic, and social impacts from the virus in developing nations over a 15-month period in 2020-2021. This is the largest crisis response for any such period in the Group’s history.

Still, much more needs to be done as many developing countries struggle with the overlapping and compounding challenges of rising inflation, higher energy prices, and supply chain constraints. This economic turbulence, in turn, can create political instability.

“The inflation starts up. That, patently, is harmful to the poor: They are more dependent on food, on fixed incomes, or low incomes. As prices go up, they are left out,” Malpass said. “We have inequality deepening and that goes directly into populism and fragility — which are big concerns.”

What Governments and Businesses Can Do

Malpass said that governments can help in two ways. First, they must use all available policy options to combat rising inflation.

“It’s going to be important that the fiscal and monetary authorities use all their available tools to help bring down inflation, rather than adding to it,” he said.

Second, it’s crucial to increase the supply of goods and energy where possible.

“One constructive thing that could be done is to increase supply, recognizing that Russian supply has been reduced,” Malpass said. “That means actually having concrete announcements by governments, by countries, by companies, of supply increase…Unfortunately, there hasn’t been much of that going on.”

Finally, Malpass said it would be vital — when the time is right and the situation is more stable — for the international community to help rebuild Ukraine.

“Ukraine will need construction of schools, hospitals, roads, bridges, railroads. All of that will take time and a lot of money,” Malpass said. “World Bank can help in the design and management of those and then bringing together the funding from the global community.”