New York: The global economy is entering a phase of “pronounced slowdown”, the World Bank warned on Tuesday, as the Omicron variant of the coronavirus, and the triple blow of soaring inflation, high government debt levels and rising income inequality threaten recoveries in emerging and developing economies.
The latest Global Economic Prospects report (PDF) from the World Bank sees global economic growth downshifting from 5.5 percent in 2021 to 4.1 percent in 2022 – an outlook that is more pessimistic than its June call for 4.3 percent growth this year.
The report also noted that the Covid-19 pandemic has raised global income inequality, partly reversing the decline that was achieved over the previous two decades, Xinhua news agency reported.
By 2023, annual output is expected to remain below the pre-pandemic trend in all emerging market and developing economy (EMDE) regions, in contrast to advanced economies, where the gap is projected to close.
Preliminary evidence suggests that the pandemic has also caused within-country income inequality to rise somewhat in EMDEs because of particularly severe job and income losses among lower-income population groups, according to the report.
“This increasing divergence of fortunes is especially troubling given the possibility of social discontent in developing countries,” the bank warned.
Shortages of raw materials and the resulting volatility in commodity prices, as well as “extreme weather events driven by climate change are aggravating food insecurity risks, further burdening health and nutrition,” said the report.
“The world economy is simultaneously facing Covid-19, inflation, and policy uncertainty, with government spending and monetary policies in uncharted territory,” said World Bank Group President David Malpass.
Noting that rising inequality and security challenges are “particularly harmful” for developing countries, Malpass added that putting more countries on a favourable growth path requires concerted international action and a comprehensive set of national policy responses.