The World Bank has cut its forecasts for economic growth in the United States, the euro area and China and warned that high debt levels, rising income inequality and the new coronavirus variant threaten recovery in developing economies.
It said global growth is expected to decline “significantly” in 2022 from last year’s 5.5 percent to 4.1 percent, and to fall to 3.2 percent in 2023 as demand slows and governments largely finance and Provides monetary assistance. Epidemic.
Forecasts for 2021 and 2022 – the first by a major international institution – were 0.2 percentage points lower than the bank’s June Global Economic Prospects report, and could be lowered even further if the Omicron version remains in place.
The International Monetary Fund is also expected to downgrade its growth forecast in its January 25 update.
The bank’s latest semi-annual forecast cited a large rebound in economic activity in advanced and developing economies in 2021 after a contraction in 2020, but warned that prolonged inflation, ongoing supply chain and labor force issues And new coronavirus variants are likely to underpin developments around the world. ,
“Developing countries face serious long-term problems related to low vaccination rates, global macro policies and debt burdens,” World Bank President David Malpass told reporters, citing lasting effects from poverty, trouble with nutrition and health data and school closures. facing.”
He said 70 per cent of 10-year-olds in low- and middle-income countries cannot read a basic story, up from 53 per cent.
World Bank report author Ayan Koss told Reuters that the rapid spread of the highly contagious Omicron variant showed the ongoing disruption caused by the pandemic, adding that the overburdened healthcare system could knock down an additional 0.7 percent. global forecast.
“There’s a clear slowdown going on,” Kos said.
“Policy support is being withdrawn and we face a lot of risks.”
According to data compiled by Reuters, COVID-19 has caused more than 300 million infections and nearly 5.8 million deaths worldwide.
According to the Our World in Data website, while 59 percent of the world’s population has received at least one dose of the COVID-19 vaccine, only 8.9 percent of people in low-income countries have received at least one dose.
Malpass described a “growing valley” in growth rates between advanced and developing economies, which World Bank economists say could lead to increased social tensions and unrest.
Kos said the risk of a “hard landing” was increasing for developing countries, as they had limited options to provide the necessary financial support, coupled with persistent inflationary pressures and high fiscal vulnerabilities.
The report forecasts growth in advanced economies will fall from 3.8 percent in 2022 to 5 percent in 2021 and 2.3 percent in 2023, but said their output and investment will still return to their pre-pandemic trend by 2023 .
The bank cut its 2021 US GDP growth by 1.2 percentage points to 5.6 percent, and forecast sharply lower growth to 3.7 percent in 2022 and 2.6 percent in 2023.
It said Japan’s GDP growth would reach 1.7 percent in 2021, 1.2 percentage points lower than forecast in June, to rise to 2.9 percent in 2022.
China’s GDP was expected to expand by 8 percent in 2021, about 0.5 percent lower than previously forecast, with growth seen slowing to 5.1 percent in 2022 and 5.2 percent in 2023.
Growth in emerging and developing economies is expected to fall from 4.6 per cent in 2022 to 6.3 per cent in 2021, falling to 4.4 per cent in 2023, meaning their output will remain 4 per cent below the pre-pandemic trend.
Fragile and conflict-ridden economies will be 7.5 percent below their pre-pandemic trend, while small island states hit by the collapse of tourism will be down 8.5 percent.
The bank noted that rising inflation – which particularly affected low-income workers – was highest since 2008 in advanced economies and highest since 2011 in emerging and developing economies.
Kos said rising interest rates pose additional risks and could further weaken growth forecasts, especially if the United States and other large economies begin raising rates in the Northern Hemisphere spring months earlier than expected.
He said the pandemic had pushed total global debt to the highest level in half a century and concerted efforts were needed to accelerate debt restructuring efforts for countries facing debt crises and involve private sector creditors.