The global economy faces strong headwinds as the Covid-19 pandemic entered its third year.
The Omicron variant has led to renewed mobility restrictions in many countries and increased labour shortages.
Supply disruptions still weigh on activity and are contributing to higher inflation, adding to pressures from strong demand and elevated food and energy prices.
Moreover, record debt and rising inflation constrain the ability of many countries to address renewed disruptions.
Last month, the International Monetary Fund (IMF) released projections indicating that global growth is expected to slow from 5.9% in 2021 to 4.4% in 2022. This is half a percentage point lower than the October 2021 forecast.
Alongside this deceleration, many economists believe persistent inflation will partially erase economic gains, with the expectation of rising interest rates slowing investment.
On top of this, 60% of low-income countries are in debt distress or at risk of debt distress, IMF says.
“These are no doubt great challenges, but there are also possibilities ahead,” points out Børge Brende, president, World Economic Forum.
“If leaders not only put in place policies to revitalise economies, but also address shared priorities in the near, medium, and long terms, there is a chance to fuel confidence and build resilience — key ingredients for economic health now and in the future,” Brende says.
Inclusive growth, digital transformation and green transition are seen are priorities as the global economy seeks recovery amid multiple challenges.
Most immediately, we must ensure the global growth is more inclusive. Many advanced economies have promising forecasts, such as China, which saw its exports jump by over $675bn last year — a 26% increase on 2020.
But there remains the risk that recovery will take years in most emerging and developing economies. If left unaddressed, this divergence will foster not just dire global economic consequences, but humanitarian ones too.
In the medium term, we need to empower digital transformation, because the global economy is undergoing rapid technological advancement and expansion, which the World Economic Forum has termed the Fourth Industrial Revolution.
The coming 5-10 years will require each and every company to ensure technology and innovation are part of its DNA. Indeed, an estimated 70% of new value over this decade will be based on business models that rely on digital applications.
Over the longer term, we must commit to going green because climate change is the most important challenge of our lifetime.
By some estimates, the global economy could face unprecedented consequences, potentially shrinking by up to 18% in the next 30 years, if decarbonisation efforts are not taken. This does not include the devastation that our planet would face in terms of biodiversity loss and loss of human life.
“Reaching net zero climate emissions by 2050 will require fundamentally transforming our economy, as companies and countries change their energy mixes, increase efficiencies, and invest in new zero-carbon solutions. But a green transition can add millions of jobs and trillions of dollars to the global economy,” Brende noted.
Clearly, there exists an opportunity to lay the foundations of a resilient and sustainable world economy for which global cooperation is absolutely essential.
