January 11, (THEWILL) – After a strong rebound in 2021, the global economy will experience “a pronounced slowdown” this year amid fresh threats from Covid-19 variants and a rise in inflation, debt, and income inequality, the World Bank has warned.
In its latest Global Economic Prospects report, the Washington-based institution said the rapid spread of the Omicron variant indicates that the pandemic is far from over and is likely to continue to disrupt economic activity in the near term.
It also warned that surging inflation rates meant many countries were withdrawing policy support “well before” the recovery was complete.
In its report, the World Bank said it expected global growth to slow from 5.5 percent in 2021 to 4.1 percent this year and to 3.2 percent in 2023 “as pent-up demand dissipates and as fiscal and monetary support is unwound across the world.”
“The slowdown will coincide with a widening divergence in growth rates between advanced economies and emerging and developing economies”, it said.
Growth in advanced economies is expected to decline from 5 percent in 2021 to 3.8 percent in 2022 and 2.3 percent in 2023 – a pace that, while moderating, will be sufficient to restore output and investment to their pre-pandemic trend in these economies.
In emerging and developing economies, however, growth is expected to drop from 6.3 percent in 2021 to 4.6 percent in 2022 and 4.4 percent in 2023.
“By 2023, all advanced economies will have achieved a full output recovery; yet output in emerging and developing economies will remain 4 percent below its pre-pandemic trend”, it said.
For many vulnerable economies, the setback is even larger: output of fragile and conflict-affected economies will be 7.5 percent below its pre-pandemic trend, and output of small island states will be 8.5 percent below.
In its report, the bank pinpoints three potential obstacles to an enduring recovery from the pandemic; debt, the boom-and-bust cycles of commodity prices; and global inequality.
It noted that Covid-19 had pushed total global debt to the highest level in half a century, suggesting “that future coordinated debt relief initiatives will face higher hurdles to success”.
It also highlighted that commodity price swings were being amplified by the forces of climate change and the energy transition away from fossil fuels.
“The world economy is simultaneously facing Covid-19, inflation, and policy uncertainty, with government spending and monetary policies in uncharted territory. Rising inequality and security challenges are particularly harmful for developing countries
“Putting more countries on a favourable growth path requires concerted international action and a comprehensive set of national policy responses”, said World Bank group president David Malpass.