By Reuters staff, published by Channel NewsAsia
Washington – The World Bank today (Jan. 11) 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 new Covid-19 variants threatened the recovery in developing economies.
It said global growth is expected to decelerate “markedly” to 4.1 percent in 2022 from 5.5 percent last year, and drop further to 3.2 percent 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 were 0.2 percentage points lower than in the bank’s June Global Economic Prospects report.
The bank’s latest semi-annual 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 labour force issues, and new Covid-19 variants were likely to dampen growth worldwide.
“There is a pronounced slowdown underway,” Ayhan Kose, director of the World Bank’s Prospects group, told Reuters in an interview. “Policy support is being withdrawn and there are a multitude of risks ahead of us.”
Kose said 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 0.7 further percentage points off the global forecast.
Covid-19 has caused nearly 300 million reported infections.
Kose said the pandemic had widened diverging growth rates between advanced and developing economies, as well as within countries, which could spark increased social tensions and unrest.
He said the risks of a “hard landing” for developing countries were increasing given their limited options to provide fiscal support as needed, persistent inflationary pressures and elevated financial vulnerabilities.
The report forecast growth in advanced economies declining to 3.8 percent in 2022 from 5 percent in 2021, and dropping further to 2.3 percent in 2023, but said their output and investment would still return to their pre-pandemic trend by 2023.
The bank cut its 2021 US gross domestic product growth by 1.2 percentage points to 5.6 percent, and forecast sharply lower growth of 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 less than forecast in June, rising to 2.9 percent in 2022.
China’s GDP was expected to expand by 8 percent in 2021, about 0.5 percentage points less 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 drop to 4.6 percent in 2022 from 6.3 percent in 2021, edging lower to 4.4 percent in 2023, which means their output would remain 4 percent below the pre-pandemic trend.
Fragile and conflict-affected economies will remain 7.5 percent below their pre-pandemic trend, while small island states, rocked by the collapse of tourism, will be 8.5 percent 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.
The pandemic had sharply increased global inequality in income, healthcare, economic growth and the scale of job losses, hitting women and low-skilled and informal workers much harder.
“This trend has the potential to leave lasting scars,” Kose said, noting that disruptions in education could affect human capital for generations.
A participant stands near a logo of the World Bank at the International Monetary Fund – World Bank Annual Meeting 2018 in Nusa Dua, Bali, Indonesia, October 12, 2018. File photo: Reuters/Johannes P. Christo and published by CNA
(Reporting by Andrea Shalal; Additional reporting by David Lawder; Editing by Richard Chang)