Inflation could be harder to bring down than anticipated due to war in Ukraine – World Bank

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The World Bank has said that in 2023, disinflationary monetary policy is expected to bite, with global output growing by just 2.9 percent.

The risks to the outlook are overwhelmingly tilted to the downside, the World Bank said.

It added that the war in Ukraine could lead to a sudden stop of European gas imports from Russia; inflation could be harder to bring down than anticipated either if labor markets are tighter than expected or inflation expectations unanchor; tighter global financial conditions could induce debt distress in emerging market and developing economies; renewed COVID-19 outbreaks and lockdowns as well as a further escalation of the property sector crisis might further suppress Chinese growth; and geopolitical fragmentation could impede global trade and cooperation.

“A plausible alternative scenario in which risks materialize, inflation rises further, and global growth declines to about 2.6 percent and 2 per cent in 2022 and 2023, respectively, would put growth in the bottom 10 percent of outcomes since 1970,” it said in its updated World Economic Outlook report.

With increasing prices continuing to squeeze living standards worldwide, the World Bank stated, taming inflation should be the first priority for policymakers.

Tighter monetary policy will inevitably have real economic costs, but delay will only exacerbate them.

“Targeted fiscal support can help cushion the impact on the most vulnerable, but with government budgets stretched by the pandemic and the need for a disinflationary overall macroeconomic policy stance, such policies will need to be offset by increased taxes or lower government spending.

“Tighter monetary conditions will also affect financial stability, requiring judicious use of macroprudential tools and making reforms to debt resolution frameworks all the more necessary. Policies to address specific impacts on energy and food prices should focus on those most affected without distorting prices.

“And as the pandemic continues, vaccination rates must rise to guard against future variants. Finally, mitigating climate change continues to require urgent multilateral action to limit emissions and raise investments to hasten the green transition.

By Laud Nartey|3news.com|Ghana

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