The world is headed to a recession worse than that experienced in the 1970s, the World Bank has warned.
Based on the 1970s experience, the lender says there is a considerable risk that inflation will continue to rise if supply shocks persist.
The risk of high inflation and low growth -"stagflation" - is also higher, as economies continue to be hit by the Ukraine war, World Bank President David Malpass said.
Malpass, in the bank's latest Global Economic Prospects report said the current supply shocks and elevated global inflation, resembles the early 1970s.
Just like in the 1970s, this year's high inflation rate was preceded by a protracted period of highly accommodative monetary policy in major economies.
The Russia-Ukraine conflict, pandemic and climate-related disruptions have greatly restricted global supply chains.
Sanctions against Russia have disrupted energy markets and supply chains for everything from wheat, fertiliser and auto parts.
"The invasion of Ukraine has also led to a significant increase in agricultural commodity prices, which is exacerbating food insecurity and extreme poverty in many emerging market and developing economies," Malpass said.
Restriction of natural gas and crude oil from Russia led to shortages in various countries as global crude oil prices soared to a near 14-year high of $140 per barrel, before easing.
The high cost of living has led the annualised inflation rate to reach its highest point in decades in many countries.
UK inflation jumped to a 40-year high of 9 per cent in May while that of the US hit 8.3 per cent and 7.4 per cent in the Eurozone.
In Kenya latest government data placed inflation at a 27-month high of 7.1 percent.
A key event that led to the recession was the 1979 energy crisis, mostly caused by the Iranian Revolution which caused a disruption to the global oil supply, which saw oil prices rising sharply in 1979 and early 1980.
This year, according to World Bank, there exist prospects for weakening growth over the longer term, which also echo the unforeseen slowdown in potential growth of the 1970s.
The global lender advises that a forceful and wide-ranging policy response is required by policy makers in both individual economies and the global community to boost growth.
Well framed policies will also quell inflation by bolstering macroeconomic frameworks, reduce financial vulnerabilities and attenuate the long-term impacts of the global shocks of recent years.
Currently, World Bank says the world is a little safe due to the fact that energy and food prices are still lower (in inflation-adjusted terms) than they were after the spikes in the 1970s .
Fuel increases over the past two years have also been less than in the 1970s.
In addition, central banks have established inflation targets, strengthened operational autonomy and, in many cases, substantial credibility built up over several decades.
"Inflation expectations are better anchored and economies have become more flexible in their ability to adjust to shocks," Malpass said.
Title: "WATCH: The biggest news in African Business"
