World Bank sees sharp world growth slowdown, 'hard landing' risk for poorer nations
11/01/2022 14:30
By Andrea Shalal
WASHINGTON, Jan 11 (Reuters) - The World Bank on Tuesday 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% 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 were 0.2 percentage points
lower than in the bank's June Global Economic Prospects report https://www.reuters.com/world/world-bank-boosts-growth-forecasts-us-stimulus-vaccines-stoke-demand-2021-06-08.
The International Monetary Fund https://www.reuters.com/business/imf-delays-release-new-forecast-jan-25-factor-covid-19-developments-2022-01-04
is also expected to downgrade its growth forecasts in its
update on Jan. 25.
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 labor 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 "Policy support is being withdrawn and there is a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 https://graphics.reuters.com/world-coronavirus-tracker-and-maps
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 https://ourworldindata.org/covid-vaccinations,
only 8.9% of people in low-income countries have received at
least one dose, according to the Our World in Data website.
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% 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 points less than previously forecast, with growth
seen slowing to 5.1% in 2022 and 5.2% in 2023.
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.
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.
(Reporting by Andrea Shalal; Additional reporting by David
Lawder; Editing by Richard Chang)
((andrea.shalal@tr.com; +1 202-815-7432;))