The World Bank said the risk of a hard landing in large parts of the global economy is increasing as countries struggle to deal with the triple threat of Covid-19, inflation and rising interest rates.
In its semi-annual forecast, the Washington, DC-based bank said it expects a “clear slowdown” in growth in the next two years, with less affluent parts of the world hit particularly hard.
David Malpass, president of the World Bank, called for action to reduce the debt of poor countries and said he was “deeply concerned” about the lasting scars of development caused by the pandemic. He said, “The global economy is simultaneously facing Covid-19, inflation and policy uncertainty, with government spending and monetary policies in uncharted territory. Growing inequality and security challenges are particularly detrimental to developing countries.”
With the Bank forecasting growth to slow from 5.5% in 2021 to 4.1% this year and 3.2% in 2023, Malpass added: “Putting more countries on an appropriate growth path requires concerted international action and a comprehensive set of national policy responses.”
The bank said that the rapid spread of the Omicron variant indicates that the epidemic is likely to continue to disrupt economic activity in the near term, while a slowdown observed in the world’s two largest economies – the United States and China – should reduce exports from emerging and developing economies.
“At a time when governments in many developing economies lack policy space to support activity if needed, new Covid-19 outbreaks, ongoing supply chain bottlenecks and inflationary pressures, and heightened financial vulnerabilities in large swaths of the world could lead to Increased risk, the report said.
Many countries are already facing a “hard landing” in education, Malpass said, noting that the number of 10-year-olds unable to read a simple text in poor countries has risen from 53% to 70% in the past two years.
“Significant debt relief is needed,” Malpass said. “If we wait too long it will be too late and it won’t work.”
The bank said growth in advanced economies is expected to decline from 5% in 2021 to 3.8% in 2022 and 2.3% in 2023 – a pace of expansion that will still be enough to restore production and investment to their pre-pandemic trend. By the end of next year, all advanced economies were expected to have made a full recovery in production.
Growth in emerging and developing economies was expected to decline from 6.3% in 2021 to 4.6% in 2022 and 4.4% in 2023, leaving output 4% below its previous pandemic trend. For fragile and conflict-affected countries, output will be 7.5% lower than its previous epidemic trend, while for small island states it will be 8.5% lower.
The bank said rising inflation – which particularly affects low-income workers – was constraining monetary policy. “Globally and in advanced economies, inflation is at its highest rate 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 – long before the recovery is complete. “.
At a time when immunization rates in the world’s poorest countries are below 10%, the World Bank said the urgent priority is to ensure that vaccines are more widely deployed.
But he said long-term support is also needed to counteract setbacks in development progress, such as rising inequality.
“At a time of high debt, global cooperation will be essential to help expand the financial resources of developing economies so that they can achieve green, resilient and inclusive development,” said Marie Pangestu, Director General of Development Policy and Partnerships at the Bank.