As per the World Bank’s latest Global Economic Prospects report, the global economy is coming into a struggling slowdown after a strong rebound in 2021, between the new threats due to the latest variants of COVID-19 and a continuous spike in the rate of inflation, debt, and income inequality that could risk the further recovery in emerging and developing economies.
Global growth is expected to decline significantly from 5.5% in 2021 to 4.1% in 2022, and 3.2% in 2023 as pent-up demand vanishes and fiscal and monetary support is unwound across the world.
The report of the World Bank further states that the continuous spike in the Omicron cases will disrupt the economic activity in the near term. Additionally, a significant slowdown in major economies, including the US and China, will weigh on external demand in emerging and developing economies.
Meanwhile, when the government of many developing nations lacks the policy space to support activity if needed, new COVID-19 outbreaks, persistent supply chain bottlenecks, inflationary pressures, and high financial vulnerabilities in giant swaths of the world could further increase the risk of a hard landing.
As per the President of the World Bank Group, David Malpass, “The global economy is dealing with COVID-19, inflation and policy uncertainty at the same time, with government spending and monetary policies in unchartered territory. Putting more nations into a favourable growth path requires concerted international action and a comprehensive set of national policy responses.”
The slowdown will be accompanied by a widening divergence in growth rates between advanced economies and emerging and developing economies. Growth in advanced economies is expected to decline by 5% in 2021 to 3.8% in 2023- a pace that, while slowing, will be sufficient to return output and investment to pre-pandemic levels.
However, growth in emerging and developing economic nations is expected to slow down from 6.3% in 2021 to 4.6% in 2022 and 4.4% in 2023. By 2023, all advanced economy nations will have achieved a full output recovery; however, output in emerging and developing nations will remain 4% below pre-pandemic levels. The setback will be more giant for several vulnerable economic countries. Output in fragile and conflict-affected economies will be 7.5% lower than pre-pandemic, and output in small island states will be 8.5% lower.