logo
POST TIME: 12 January, 2022 08:24:28 PM
Global growth to slow through 2023: WB
BSS, Dhaka

Global growth to slow through 2023: WB

Following a strong rebound in 2021, the  global economy is entering a pronounced slowdown amid fresh threats from  COVID-19 variants and a rise in inflation, debt, and income inequality that 

could endanger the recovery in emerging and developing economies, according  to the World Bank's latest Global Economic Prospects report. 

     Global growth is expected to decelerate markedly from 5.5 percent in  2021 to 4.1 percent in 2022 and 3.2 percent in 2023 as pent-up demand 
dissipates and as fiscal and monetary support is unwound across the world, as  per a WB press release here today.

     The rapid spread of the Omicron variant indicates that the pandemic will  likely continue to disrupt economic activity in the near term. In addition, a  notable deceleration in major economies-including the United States and  China-will weigh on external demand in emerging and developing economies.

     At a time when governments in many developing economies lack the policy 
space to support activity if needed, new COVID-19 outbreaks, persistent 
supply-chain bottlenecks and inflationary pressures, and elevated financial 
vulnerabilities in large swaths of the world could increase the risk of a 
hard landing.

     "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," said World Bank Group 
President David Malpass.

     "Putting more countries on a favorable growth path requires concerted 
international action and a comprehensive set of national policy responses," 
he added.

     The slowdown will coincide with a widening divergence in growth rates 
between advanced economies and emerging and developing economies. 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. 

     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.

     Meanwhile, rising inflation-which hits low-income workers particularly 
hard-is constraining monetary policy. Globally and in advanced economies, 
inflation is running at the highest rates since 2008. 

     In emerging market and developing economies, it has reached its highest 
rate since 2011. Many emerging and developing economies are withdrawing 
policy support to contain inflationary pressures-well before the recovery is 
complete.

     The latest Global Economic Prospects report features analytical sections 
that provide fresh insights into three emerging obstacles to a durable 
recovery in developing economies. The first, on debt, compares the latest 
international initiative to tackle unsustainable debt in developing 
economies-the G20 Common Framework-with previous coordinated initiatives to 
facilitate debt relief.

     Noting that COVID-19 pushed total global debt to the highest level in 
half a century even as the creditors' landscape became increasingly complex, 
it finds that future coordinated debt relief initiatives will face higher 
hurdles to success. Applying lessons from the past restructurings to the G20 
Common Framework can increase its effectiveness and avoid the shortcomings 
faced by earlier initiatives.

     "The choices policymakers make in the next few years will decide the 
course of the next decade," said Mari Pangestu, the World Bank's Managing 
Director for Development Policy and Partnerships.

     "The immediate priority should be to ensure that vaccines are deployed 
more widely and equitably so the pandemic can be brought under control. But 
tackling reversals in development progress such as rising inequality will 
require sustained support. In a time of high debt, global cooperation will be 
essential to help expand the financial resources of developing economies so 
they can achieve green, resilient, and inclusive development," he added.

     The second analytical section examines the implications of boom-and-bust 
cycles of commodity prices for emerging market and developing economies, most 
of which are heavily dependent on commodity exports. 

     It finds that these cycles were particularly intense in the past two 
years, when commodity prices collapsed with the arrival of COVID-19 and then 
surged, in some cases to all time-highs last year. Global macroeconomic 
developments and commodity supply factors will likely cause boom-bust cycles 
to continue in commodity markets.

     For many commodities, these cycles may be amplified by the forces of 
climate change and the energy transition away from fossil fuels. The analysis 
also shows that commodity-price booms since the 1970s have tended to be 
larger than busts, creating significant opportunities for stronger and more 
sustainable growth in commodity-exporting countries-if they employ 
disciplined policies during booms to take advantage of windfalls.

     The third analytical section explores COVID-19's impact on global 
inequality. It finds that the pandemic has raised global income inequality, 
partly reversing the decline that was achieved over the previous two decades. 

     It has also increased inequality in many other spheres of human 
activity-in the availability of vaccines; in economic growth; in access to 
education and health care; and in the scale of job and income losses, which 
have been higher for women and low-skilled and informal workers. 

     This trend has the potential to leave lasting scars: for example, losses 
to human capital caused by disruptions in education can spill over across 
generations.

     Ayhan Kose, Director of the World Bank's Prospects Group, said: "In 
light of the projected slowdown in output and investment growth, limited 
policy space, and substantial risks clouding the outlook, emerging and 
developing economies will need to carefully calibrate fiscal and monetary 
policies. They also need to undertake reforms to erase the scars of the 
pandemic. These reforms should be designed to improve investment and human 
capital, reverse income and gender inequality, and cope with challenges of 
climate change."

HM