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World Bank: Recession will be ‘hard to avoid’ for some countries

Yahoo Finance Live anchors discuss the World Bank’s outlook on inflation as well as the possibility for a recession in developing economies.

Video Transcript

BRAD SMITH: Everyone, another major story that we're tracking here. The World Bank is warning that the global economy faces risk of both high inflation and low growth, which could throw some countries into a recession. In the updated report, we know that the World Bank slashed forecasts for global growth this year to 2.9%. That's down from 4.1% in January.

One of the quotes coming out from World Bank President David Malpass saying that the war in Ukraine, lockdowns in China, supply chain disruptions, and then the risk of stagflation are hammering growth. And for many countries, recession will be hard to avoid.

JULIE HYMAN: Yeah, and in particular, they're talking about developing economies in this note as well. The level of per capita income in developing economies this year will be nearly 5% below pre-pandemic trend, which is really fascinating there and also draws a sharp contrast with what we have seen here in the United States.

Because even though we are debating recession, et cetera, if you look at income level, if you look at earnings growth, if you look at many other metrics, as Amanda Agati of PNC was pointing out earlier, we're in decent shape. And that is even more stark in comparison with some of these developing economies and what they're facing. And the bite that inflation takes, as painful as it is here, if you have lower income, it's even more painful.

BRIAN SOZZI: No, right, and the World Bank noting, global inflation is expected to moderate next year. But it will likely remain above inflation targets in many economies. Of course, that has direct implications on what the Fed and central banks oversee, what they do and what they don't do.

And then secondarily, the headline from this is stagflation. And I would argue-- I'll push back on what Amanda said. When you see an earnings report from the likes of Target and some of the other ones we saw late in May, these are companies that are, of course, consumer-driven, but preparing for a stagflationary environment for--

JULIE HYMAN: Well--

BRIAN SOZZI: --the balance of this year.

JULIE HYMAN: But it's not a wholesale consumer pullback. It's a pullback in very specific areas where we saw enormous pull forward during the pandemic.

BRIAN SOZZI: But I think you brought up a good point in the prior segment, Julie. At one point do you start to see that pullback in services? Does it happen? Prices for services, too, are starting to go through the roof. Is it Dave and Buster's quarter? Is this the best it gets here right now?

JULIE HYMAN: Well, I think you've got to look out a little bit further. But maybe. Who knows?

BRAD SMITH: Well, it gets passed through in experiences as well, though.

JULIE HYMAN: Yeah.