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, according to the World Bank.
This, the Bretton Woods Institution noted, is because the pent-up demand has dissipated and governments begin unwinding massive fiscal and monetary support provided early in the pandemic.
Clearly, World Bank sees a sharp world growth slowdown and “hard landing” risk for economically weaker nations due to continued Covid-19 flare-ups, diminished fiscal support, and lingering supply bottlenecks.
In its recent assessment of the global economy, the World Bank provided a somewhat weaker near-term outlook for growth. It sees global inflation notably higher, than previously envisioned, owing to pandemic resurgence, higher food and energy prices, and more pernicious supply disruptions.
Although output and investment in advanced economies are projected to return to pre-pandemic trends next year, in emerging market and developing economies (EMDEs) — particularly in small states and fragile and conflict-afflicted countries — they will remain markedly below, owing to lower vaccination rates, tighter fiscal and monetary policies, and more persistent scarring from the pandemic.
Various downside risks cloud the World Bank outlook, including simultaneous Omicron-driven economic disruptions, further supply bottlenecks, a de-anchoring of inflation expectations, financial stress, climate-related disasters, and a weakening of long-term growth drivers. As emerging market and developing economies have limited policy space to provide additional support if needed, these downside risks heighten the possibility of a hard landing.
This underscores the importance of strengthening global
co-operation to foster rapid and equitable vaccine distribution, calibrate health and economic policies, enhance debt sustainability in the poorest countries, and tackle the mounting costs of climate change.
According to the World Bank, EMDE policy makers also face the challenges of heightened inflationary pressures, spillovers from prospective advanced-economy monetary tightening, and constrained fiscal space.
Over the longer term, emerging market and developing economies will need to buttress growth by pursuing decisive policy actions, including reforms that mitigate vulnerabilities to commodity shocks, reduce income and gender inequality, and enhance preparedness for health- and climate-related crises.
Overall, the growth in Middle East and North Africa (Mena) region is expected to accelerate to 4.4% in 2022, an upward revision from June 2021 and moderate to 3.4% in 2023, World Bank said.
The gap in average per capita income between Mena and advanced economies is projected to widen during the forecast horizon, however.
Higher oil and natural gas prices and increased production are expected to benefit energy exporters. The short-term outlook has also improved for oil importers, the World Bank noted.
That said, the World Bank noted that further Covid-19 outbreaks, social unrest, high debt in some economies, and conflict could undermine economic activity in Mena.
With less than two-fifths of the population of Mena fully vaccinated, concentrated in the region’s high-income economies, economic disruptions related to the pandemic remain a major risk, the World Bank noted.
Analysts say changes to oil prices could undermine activity in the region with gains and losses accruing differently to oil importers and exporters. Also, underinvestment in the sector may limit the ability of oil exporters to take advantage of high oil prices.
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