50/50: A Global Recession? — David Malpass Interview — GZERO World

[00:00:00] David Malpass: - David Malpass, president of the World Bank. Thanks for joining us on GZERO World. [00:00:06] Speaker 2: - Hi Ian, good to see you again. [00:00:08] David Malpass: - Thank you. So I gotta start with the elephant in the room because I mean, I saw all this news last week and Al Gore says you're a climate change denier and there's this big flap about you and the panel during the United Nations. [00:00:20] Speaker 3: - Let me just be as clear as I can. Do you accept the scientific consensus that the manmade burning of fossil fuels is rapidly and dangerously warming the planet? [00:00:29] Speaker 2: - I don't even know, I'm not a scientist and that is not a question so Al Gore can put. I don't know why it stays on the stage. What we need to do is move forward with impactful projects. [00:00:43] David Malpass: - Can you just sort of clarify that you are not a climate change denier? [00:00:48] Speaker 2: - Sure, I'm not. You know, it's clear that greenhouse gas emissions from human activity are causing global warming. The World Bank is in the middle of many of these, the most important issues in climate change. And staff are working all over the World Bank, you know, massive effort, massive financing. The World Bank is the biggest worker on climate change now. That means more financing than other sources in the world. That also means more diagnostics, which are really important as people try to focus their priorities. We're pushing hard on reduction of greenhouse gas emissions. As you think about it, the impact, actually how people do that is the biggest challenge and what a lot of people are trying to duck. You know, I really want to get us from the conference mode to the actual project mode and impact as far as reducing greenhouse gas emissions. [00:01:48] David Malpass: - So let's talk about projects. And this year, of course, we are seeing considerably higher carbon emissions than we saw last year. And a big piece of that is because of the massive disruptions that we've had from the Russian invasion into Ukraine. I am also seeing that banks are increasingly moving back into fossil fuels because they can get short-term returns and because a lot of countries just need energy desperately. How bad is that situation? How much of a reversion are we seeing? And how do we address it? [00:02:23] Speaker 2: - This is a real concern. It's happening right now. So more and more countries are reopening coal-fired power plants. Europe is scouring really the world for coal and for more natural gas. That has consequences because the natural gas is a critical input to fertilizer and to food. And so there's consequences and trade-offs being made really every day as they fill their winter storage with natural gas. I want people to look ahead to next year and the following year as well. There has to be a better way to have fertilizer production. One of the concerns is it looks as if Europe is moving away from producing fertilizer in Europe and instead buying it, which creates shortages elsewhere in the world. So these are very real topics and massive problems. But the immediate problem right now is shortage of natural gas means there's a shortage of fertilizer and a shortage of next year's crops. [00:03:28] David Malpass: Yeah, I mean, this year we have enough food, but it's not well distributed. Next year, we're looking at an actual food shortage. Give us your best sense right now, and I understand this is an imperfect science, of what kind of a shortfall you think we could be expecting in 2023 and what that will mean for global hunger compared to a typical year. [00:03:53] Speaker 2: There are a lot of variables. One is some countries have massive storage. So if they decide to release or reduce somewhat their storage, China and India are too, and the United States has storage. That will be enough to smooth or to help smooth conditions next year. So that's one variable. Another big variable is the weather in various parts of the world. South America's had a drought that reduced their production, and they're one of the swing producers in the world. And a big, big variable is the U.S. itself because it's the world's biggest economy. So the actions taken in the U.S. to create either more energy or more foodstuffs are material in the world. So it's very hard to say one year from now where the shortages will be. But I want to come back to Ukraine itself. I met with President Zelensky in Munich. We moved very fast in March and April with World Bank resources for Ukraine to keep the administrative functions of their government running, and then quickly used all of our various tools within the World Bank Group to make available channels for other countries to support Ukraine. So we've been the biggest conduit for the support coming in from the United States, from the UK, from the European Union, from Japan and others in making resources available. We've dispersed just since that, those initial March and April disbursements, we've dispersed $11 billion to the various functions of the Ukraine government with more every week. The bank did a major assessment of the damage in Ukraine, which came out last week, showing some $350 billion of damage already, plus $150 billion of ongoing needs in Ukraine. I think people are trying to put that together, but there's a lot of different threads going on. [00:06:05] David Malpass: - Now we've talked so far mostly about hangover from this continuing Russian invasion and war in Ukraine. We haven't mentioned, I haven't mentioned yet COVID, but I mean, Biden says the pandemic is over, but of course in China, that's certainly not true. How much is the reality of the pandemic still impacting global supply chain, resource availability for the poorest countries, and how's the World Bank responding? [00:06:31] Speaker 2: - We know China really had very strict lockdowns in the second quarter. So their GDP on a quarter over quarter basis, annual rate went negative 2%. So that's a sizable shrinkage that disrupted global supply chains. They've loosened that somewhat, but there's still lockdowns going on. So that's one of the big impacts is the world's second biggest economy has had a later cycle with COVID than much than the rest of the world. They're looking at vaccination techniques, and I'm optimistic that the fourth quarter, later this year and into next year, their supplies will be increasing. Also, the world is diversifying from China as the critical supplier in all of these in so many areas. And so that gives some prospects going forward. Rest of the world, I think, is still suffering rippling outbreaks of COVID that are disruptive and should be taken very seriously. You know, we've set up at the World Bank with leadership from the U.S. and other countries, a major new trust fund called the PPR Fifth. That's the Pandemic Preparedness and Response Financial Intermediary Fund. And the reason I give you the name for that is you'll be hearing about it. It's large and it will be trying to work with countries so they prepare better for future crises. [00:08:04] David Malpass: - So there's no question Ukraine is getting an enormous amount of attention and increasingly getting an awful lot of money. I wanna ask you honestly, when there's this much attention to a conflict that is this damaging, does it take a lot of the air out of the room? Does it make it harder to get the kind of funding that you need for all the other challenges that aren't driving the headlines right now in developing countries? [00:08:25] Speaker 2: - There is some of that, but not as much as you might think. For one, the bank is large and staff are working on lots of areas continuously. And so I don't feel at all that we've taken eye off of the food crisis in Africa, of the climate change crisis going on around the world. So I would put more emphasis, Ian, on the problems are still coming off of the Ukraine war. It means Europe, for example, is probably in recession and it's hard to dig out of that. So the impacts on the rest of the world are coming from the deep slowdown that still is underway. We're worried about it turning into a world recession next year because of the supply, the combination of inflation, rate hikes, supply chain disruptions, and the actual cutoff of resources from Russia. All of that goes into concern about 2023. [00:09:32] David Malpass: - Well, at this point, would you say that you think it is more likely than not that the world will be in recession in 2023? [00:09:38] Speaker 2: - I'd say 50/50 right now. The bigger focus that I have and the worry I have is development itself. Development is in crisis. Many of the countries, whether middle-income countries or the poorest countries, are moving backwards in so many areas in terms of education and health and food insecurity, but also in terms of capital flows, there's a capital outflow. One big number is the payment on debt by the Ida countries. That's the 75 poorest countries in the world that are the recipients of large World Bank grants. Their outflows, their payments on debt are $44 billion this year, which is more than all the world's development assistance resources. - So they're moving backwards. [00:10:29] David Malpass: They're literally moving backwards at this point. [00:10:31] Speaker 2: - They're moving backwards in terms of cash on hand, in terms of new investment and the infrastructure maintenance that's so critical to keep things operating. And that's a big concern because there's not really a world direction on how to deal with that. I've spoken and written about things that I think should be done, but I'm really worried about that situation. [00:10:53] David Malpass: - So David, is it fair to say, I mean, yeah, China's getting a little better. Europe is getting a little, maybe significantly worse. But if we look at COVID and we look now at Russia, Ukraine, overwhelmingly the pain and hardship that comes from these global crises is being born on the backs of the poorest countries in the world. [00:11:14] Speaker 2: - That's right, that's multifaceted. That's the general inequality of the world, meaning most of the capital goes to the higher income countries. My conclusion, or where I think we are at right now, is we have such a crisis in development that we need to be thinking about new pathways out. That means changes in global capital flows that will work better for new businesses, for weaker countries within the capital flow structure. But that also means rule of law that will work better for the countries themselves. [00:11:55] David Malpass: - David Malpass, thank you very much. - Thanks Ian.