Health

World Bank sees sharp world growth slowdown, ‘hard landing’ risk for poorer nations

It said global growth is expected to
decelerate “markedly” to 4.1% in 2022 from 5.5% last year, and drop
further to 3.2% in 2023 as pent-up demand dissipates and governments unwind
massive fiscal and monetary support provided early in the pandemic.

The forecasts for 2021 and 2022 – the
first by a major international institution – were 0.2 percentage point lower
than in the bank’s June Global Economic Prospects report, and could be knocked
even lower if the Omicron variant persists.

The International Monetary Fund is also
expected to downgrade its growth forecasts in its update on Jan. 25.

The bank’s latest semiannual forecast
cited a big rebound in economic activity in advanced and developing economies
in 2021 after contractions in 2020, but warned that longer-lasting inflation,
ongoing supply chain and labor force issues, and new coronavirus variants were
likely to dampen growth worldwide.

“Developing countries are facing
severe long-term problems related to lower vaccination rates, global macro
policies and the debt burden,” World Bank President David Malpass told
reporters, citing troubling reversals in poverty, nutrition and health data and
permanent impacts from school closures.

Seventy percent of 10-year olds in low-
and middle-income countries cannot read a basic story, up from 53%, he said.

Ayhan Kose, author of the World Bank
report, told Reuters the rapid spread of the highly contagious Omicron variant
showed the continuing disruption caused by the pandemic, and said a surge that
overwhelmed healthcare systems could knock up to an additional 0.7 further
percentage point off the global forecast.

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“There is a pronounced slowdown
underway,” Kose said. “Policy support is being withdrawn and there is
a multitude of risks ahead of us.”

COVID-19 has caused more than 300
million reported infections worldwide and over 5.8 million deaths, according to
data compiled by Reuters. While 59% of the world’s population has received at
least one dose of a COVID-19 vaccine, only 8.9% of people in low-income
countries have received at least one dose, according to the Our World in Data
website.

Malpass described a “growing
canyon” in growth rates between advanced and developing economies, which
World Bank economists say could spark increased social tensions and unrest.

Kose said the risks of a “hard
landing” for developing countries were increasing given their limited
options to provide needed fiscal support, coupled with persistent inflationary
pressures and elevated financial vulnerabilities.

The report forecast growth in advanced
economies declining to 3.8% in 2022 from 5% in 2021, and dropping further to
2.3% in 2023, but said their output and investment would still return to their
pre-pandemic trend by 2023.

The bank cut its 2021 U.S. gross
domestic product growth by 1.2 percentage points to 5.6%, and forecast sharply
lower growth of 3.7% in 2022 and 2.6% in 2023. It said Japan’s GDP growth would
reach 1.7% in 2021, 1.2 percentage points less than forecast in June, rising to
2.9% in 2022.

China’s GDP was expected to expand by 8%
in 2021, about 0.5 percentage point less than previously forecast, with growth
seen slowing to 5.1% in 2022 and 5.2% in 2023.

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Growth in emerging and developing
economies is expected to drop to 4.6% in 2022 from 6.3% in 2021, edging lower
to 4.4% in 2023, which means their output would remain 4% below the
pre-pandemic trend.

Fragile and conflict-affected economies
will remain 7.5% below their pre-pandemic trend, while small island states,
rocked by the collapse of tourism, will be 8.5% below.

The bank noted that rising inflation —
which hits low-income workers particularly hard — was at its highest since 2008
in advanced economies, and the highest since 2011 in emerging and developing
economies.

Rising interest rates posed additional
risks, and could further undermine the growth forecasts, especially if the
United States and other large economies begin jacking up rates this spring,
months earlier than expected, Kose said.

He said the pandemic had also 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
distress, and get private-sector creditors engaged.

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