The World Bank has lowered its projection for The Bahamas’ economic growth in 2022, from the eight percent it projected in January to now six percent, as detailed in the bank’s June Global Economic Prospects report.
The Bahamas is not alone, as the World Bank’s projected global economic activity has been lowered to 2.9 percent, fueled by the impact of COVID-19 and high inflation.
The projected growth for the entire Caribbean region was also lowered from the 7.3 percent projected in January to now 6.9 percent.
“Amid the war in Ukraine, surging inflation, and rising interest rates, global economic growth is expected to slump in 2022. Several years of above-average inflation and below-average growth are now likely, with potentially destabilizing consequences for low- and middle-income economies. It’s a phenomenon – stagflation – that the world has not seen since the 1970s,” World Bank President David Malpass said.
“Our forecasts reflect a sizable downgrade to the outlook: global growth is expected to slow sharply from 5.7 percent in 2021 to 2.9 percent this year. This also reflects a nearly one-third cut to our January 2022 forecast for this year of 4.1 percent. The surge in energy and food prices, along with the supply and trade disruptions triggered by the war in Ukraine and the necessary interest rate normalization now underway, account for most of the downgrade.”
Bahamians, like much of the rest of the world, have been grappling with skyrocketing fuel prices and historically high inflation, which has raised the prices of many everyday goods and services.
While prices are expected to stabilize over the short term, the World Bank said there is a risk that inflation will remain higher for longer than currently anticipated.
“The danger of stagflation is considerable today. Between 2021 and 2024, global growth is projected to have slowed by 2.7 percentage points – more than twice the deceleration between 1976 and 1979. Subdued growth will likely persist throughout the decade because of weak investment in most of the world,” the World Bank president said.
The Central Bank of The Bahamas (CBOB) has said it is expected the economy would maintain a healthy recovery momentum for the rest of the year. It had previously projected the economy could be fully recovered over the course of 2023.
However, in its most recent economic review, CBOB cautioned that counter-inflation measures, particularly in the United States, could slow the momentum gained in the past several months.
The lower projection also comes as the government seeks financing from a dual-tranche bond issuance placed last week, adding more debt, albeit at a more affordable price.
“External public debt in developing economies is at record levels today. Most of it is owed to private creditors, and much of it involves variable interest rates that could spike suddenly. As global financing conditions tighten and currencies depreciate, debt distress – previously confined to low-income economies – is spreading to middle income countries,” the World Bank said.
“The removal of monetary accommodation in the United States and other advanced economies, along with the ensuing increase in global borrowing costs, represents another significant headwind for the developing world. In addition, over the next two years, most of the fiscal support provided in 2020 to fight the pandemic will have been unwound. Despite this consolidation, debt levels will remain elevated.”
