World Bank cuts 2022 global growth forecast on virus flare-ups

[WASHINGTON] Covid-19 flare-ups, diminished policy support, and lingering supply-chain bottlenecks will see the global economic recovery cool more than previously estimated in 2022, after last year's expansion clocked the fastest post-recession pace in eight decades, the World Bank said.

Global gross domestic product will probably increase 4.1 per cent this year, less than a 4.3 per cent forecast in June, the Washington-based development organization said in its semi-annual Global Economic Prospects report Tuesday.

By 2023, annual output is expected to remain below the pre-pandemic trend in all regions with emerging-market and developing economies, while in advanced economies, the gap is estimated to close, it said.

"There is there a serious slowdown underway," Ayhan Kose, the chief economist of the Prospects Group at the institution, said in an interview. The global economy "is basically on two different flight paths: Advanced economies are flying high; emerging-market, developing economies are somewhat flying low and lagging behind."

The global outlook is clouded by what World Bank Group President David Malpass termed "exceptional uncertainty."

Downside risks include renewed Covid-19 outbreaks, the possibility of de-anchored inflation expectations, and financial stress in a context of record-high debt levels, the bank said. In emerging markets with limited policy space to provide support, the risks heighten chances of a hard landing for their economies, it said.

GET BT IN YOUR INBOX DAILY

Start and end each day with the latest news stories and analyses delivered straight to your inbox.

Sign UpVIEW ALL

In advanced economies, high vaccination rates and sizable fiscal support have helped cushion some of the adverse economic impacts of the pandemic.

In contrast, the pace of recovery for emerging nations has been further damped by waning policy support and a tightening of financing conditions.

The bank trimmed its outlook for the US economy this year by half a percentage point to 3.7 per cent, and cut its forecast for China's economic expansion by 0.3 percentage point to 5.1 per cent.

Although the growth forecasts for emerging and developing nations are only slightly weaker than previous projections, this masks notable divergences across regions, the bank said.

Downgrades in Europe and Central Asia and Latin America and the Caribbean - due to faster removal of policy support - are accompanied by upgrades in the Middle East and North Africa and Sub-Saharan Africa amid higher-than-expected oil revenues.

In 2023, emerging and developing nations are expected to suffer "substantial scarring," with aggregate output seen 4 per cent below its pre-pandemic trend.

In fragile and conflict-affected emerging and developing countries, output next year is seen 7 per cent below pre-virus trends "as they face heightened uncertainty, security challenges, weak investment prospects, and anemic vaccination progress," the bank said.

BLOOMBERG