The World Bank has significantly reduced its growth outlook for 2022 and is concerned that we may be facing “global stagflation.” The World Bank’s “Global Economic Prospects June 2022″ report highlights the vulnerability of lower income economies in the current environment of lower growth and rising food and energy prices. Nevertheless, the bank retains a relatively sanguine view, as it sees a persistently vibrant U.S. economy and declining commodity prices in both 2023 and 2024.
The chart below resumes the World Bank’s latest real GDP forecasts for emerging market economies and several important frontier markets (Nigeria, Pakistan, Bangladesh and Vietnam.) The bank’s forecast provides growth estimates through 2024. The chart ranks countries in terms of their 3-year average real GDP growth for the 2022-2024 period. The two columns on the right show the changes since the bank’s prior forecast six months ago which was made prior to the Ukraine invasion and the COVID lockdowns in China. Given its mandate, the bank tends to be “politically correct” in its forecasts. Historically, this has resulted in the bank usually accepting China’s official targets, and in this case it may explain the optimistic forecast for the U.S. The relatively low economic cost to Russia for the invasion of Ukraine (well below most other estimates) is difficult to explain.
As we have come to expect, most of the world’s growth will come from Asia where the bank expects stellar GDP growth in India, Bangladesh, Vietnam, the Philippines and Indonesia. This kind of growth is probably not priced in for the stock markets of Indonesia and the Philippines. Egypt’s high expected growth is also surprising good news for this normally struggling economy and should be supportive of higher asset prices. Though Malaysia’s expected growth is not as stellar, stock prices there are very low and also provide good prospects.
Also, in what has become the “new normal,” growth prospects in Latin America and South Africa are dismal. Chile and Brazil are at the bottom of the chart, and would be last if not for the dramatic woes inflicted by Putin on Russia. In the case of both Chile and Brazil these GDP forecasts are likely optimistic if Chile’s new constitution is approved as currently expected and if Lula wins the election in Brazil as is also the most likely scenario. The one Latin American exception — Colombia — is a big if, as the World Bank’s forecast is certainly wildly optimistic should the former guerilla fighter Gustavo Petro win the election on June 19. As in the case of Chile, Colombia faces capital flight and low investments for the foreseeable future.