Following a strong rebound in 2021, the
global economy is entering a pronounced slowdown amid fresh threats from
COVID-19 variants and a rise in inflation, debt, and income inequality that
could endanger the recovery in emerging and developing economies, according
to the World Bank’s latest Global Economic Prospects report.
Global growth is expected to decelerate markedly from 5.5 percent in
2021 to 4.1 percent in 2022 and 3.2 percent in 2023 as pent-up demand
dissipates and as fiscal and monetary support is unwound across the world, as
per a WB press release here today.
The rapid spread of the Omicron variant indicates that the pandemic will
likely continue to disrupt economic activity in the near term. In addition, a
notable deceleration in major economies-including the United States and
China-will weigh on external demand in emerging and developing economies.
At a time when governments in many developing economies lack the policy
space to support activity if needed, new COVID-19 outbreaks, persistent
supply-chain bottlenecks and inflationary pressures, and elevated financial
vulnerabilities in large swaths of the world could increase the risk of a
“The world economy is simultaneously facing COVID-19, inflation, and
policy uncertainty, with government spending and monetary policies in
uncharted territory. Rising inequality and security challenges are
particularly harmful for developing countries,” said World Bank Group
President David Malpass.
“Putting more countries on a favorable growth path requires concerted
international action and a comprehensive set of national policy responses,”
The slowdown will coincide with a widening divergence in growth rates
between advanced economies and emerging and developing economies. Growth in
advanced economies is expected to decline from 5 percent in 2021 to 3.8
percent in 2022 and 2.3 percent in 2023-a pace that, while moderating, will
be sufficient to restore output and investment to their pre-pandemic trend in
In emerging and developing economies, however, growth is expected to
drop from 6.3 percent in 2021 to 4.6 percent in 2022 and 4.4 percent in 2023.
By 2023, all advanced economies will have achieved a full output recovery;
yet output in emerging and developing economies will remain 4 percent below
its pre-pandemic trend.
For many vulnerable economies, the setback is even larger: output of
fragile and conflict-affected economies will be 7.5 percent below its pre-
pandemic trend, and output of small island states will be 8.5 percent below.
Meanwhile, rising inflation-which hits low-income workers particularly
hard-is constraining monetary policy. Globally and in advanced economies,
inflation is running at the highest rates 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-well before the recovery is
The latest Global Economic Prospects report features analytical sections
that provide fresh insights into three emerging obstacles to a durable
recovery in developing economies. The first, on debt, compares the latest
international initiative to tackle unsustainable debt in developing
economies-the G20 Common Framework-with previous coordinated initiatives to
facilitate debt relief.
Noting that COVID-19 pushed total global debt to the highest level in
half a century even as the creditors’ landscape became increasingly complex,
it finds that future coordinated debt relief initiatives will face higher
hurdles to success. Applying lessons from the past restructurings to the G20
Common Framework can increase its effectiveness and avoid the shortcomings
faced by earlier initiatives.
“The choices policymakers make in the next few years will decide the
course of the next decade,” said Mari Pangestu, the World Bank’s Managing
Director for Development Policy and Partnerships.
“The immediate priority should be to ensure that vaccines are deployed
more widely and equitably so the pandemic can be brought under control. But
tackling reversals in development progress such as rising inequality will
require sustained support. In a time of high debt, global cooperation will be
essential to help expand the financial resources of developing economies so
they can achieve green, resilient, and inclusive development,” he added.
The second analytical section examines the implications of boom-and-bust
cycles of commodity prices for emerging market and developing economies, most
of which are heavily dependent on commodity exports.
It finds that these cycles were particularly intense in the past two
years, when commodity prices collapsed with the arrival of COVID-19 and then
surged, in some cases to all time-highs last year. Global macroeconomic
developments and commodity supply factors will likely cause boom-bust cycles
to continue in commodity markets.
For many commodities, these cycles may be amplified by the forces of
climate change and the energy transition away from fossil fuels. The analysis
also shows that commodity-price booms since the 1970s have tended to be
larger than busts, creating significant opportunities for stronger and more
sustainable growth in commodity-exporting countries-if they employ
disciplined policies during booms to take advantage of windfalls.
The third analytical section explores COVID-19’s impact on global
inequality. It finds that the pandemic has raised global income inequality,
partly reversing the decline that was achieved over the previous two decades.
It has also increased inequality in many other spheres of human
activity-in the availability of vaccines; in economic growth; in access to
education and health care; and in the scale of job and income losses, which
have been higher for women and low-skilled and informal workers.
This trend has the potential to leave lasting scars: for example, losses
to human capital caused by disruptions in education can spill over across
Ayhan Kose, Director of the World Bank’s Prospects Group, said: “In
light of the projected slowdown in output and investment growth, limited
policy space, and substantial risks clouding the outlook, emerging and
developing economies will need to carefully calibrate fiscal and monetary
policies. They also need to undertake reforms to erase the scars of the
pandemic. These reforms should be designed to improve investment and human
capital, reverse income and gender inequality, and cope with challenges of