In a
nutshell, the global recovery is set to decelerate markedly and is
clouded by various downside risks.
This increases the possibility of a
hard landing—a much
sharper slowdown than currently envisioned—especially in emerging
market and developing economies (EMDEs) with limited policy space.
The
report includes analytical pieces on debt restructuring frameworks,
commodity price cycles, and the impact of COVID-19
on global income inequality. I summarize the main messages of the
report below (to download the full report, please use this
link). (...)
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Global Outlook.
After rebounding to an
estimated 5.5 percent in 2021, global growth is expected to decelerate
markedly—to 4.1 percent in 2022 and 3.2 percent in 2023 as pent-up
demand wanes and supportive macroeconomic policies continue to be
unwound. 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 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 EMDEs have limited policy space to provide
additional support if needed, these downside risks heighten the
possibility of a hard landing. 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, EMDEs 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.
Regional Outlooks.
Growth in most EMDE
regions in 2022-23 is projected to revert to the average rates during
the decade prior to the pandemic. This pace of growth will not be enough
to recoup output setbacks during the pandemic. All regions will stand
in contrast to advanced economies, where the
gap is projected to close. Risks to EMDE regional outlooks are tilted
to the downside, including continued COVID-19 outbreaks, sluggish
progress on vaccination, financial stress, lower-than-expected commodity
prices, geopolitical tensions and social unrest,
food insecurity, and disruptions and damages from extreme weather.
Resolving High Debt after the Pandemic: Lessons from Past Episodes of Debt Relief.
In the pandemic-induced global recession of 2020, global debt levels
surged. The rise in debt has led to several countries initiating debt
restructurings. The G20 Common Framework provides a structure to
initiate debt restructuring for low-income IDA eligible
countries, but largely avoids the issue of outright debt reductions.
Historically, several umbrella frameworks similarly coordinated debt
relief to multiple debtor countries from multiple creditors on common
principles. Future umbrella frameworks for debt
restructuring will face greater challenges than those in the past due
to a more fragmented creditor base.
Commodity Price Cycles: Drivers and Policies.
Commodity prices soared in 2021 following the broad-based decline in
early 2020, with prices of several commodities reaching all-time highs.
Energy and metal prices generally move in line with global economic
activity, and this tendency has strengthened in
recent decades. Looking ahead, global macroeconomic developments and
commodity supply factors will likely continue to cause recurring
commodity price swings. For many commodities, these may be amplified by
climate change and the transition away from fossil
fuels. To dampen the associated macroeconomic fluctuations,
commodity-exporting EMDEs need to strengthen their policy frameworks and
reduce their reliance on commodity-related revenues by diversifying
exports and, more importantly, national asset portfolios.
Impact of COVID-19 on Global Income Inequality.
The COVID-19 pandemic has raised global income inequality, partly
reversing the decline that was achieved over the previous two decades.
Weak recoveries in EMDEs are expected to return between-country
inequality to the levels of the early 2010s. The pandemic
has also caused within-country income inequality to rise in EMDEs
because of particularly severe job and income losses among lower-income
population groups. Over the medium and long term, rising inflation,
especially food price inflation, as well as pandemic-related
disruptions to education may further raise within-country inequality.
To steer the global recovery onto a more equitable development path, a
comprehensive package of policies is needed. Assistance from the global
community is essential to expedite a return
to a green, resilient, and inclusive recovery.
PS: For our work on inflation, see
Inflation in Emerging and Developing Economies.
For our new database
of inflation, see One-Stop Source: A Global
Database of Inflation. For our work on debt challenges, see
Global Waves of Debt: Causes and Consequences,
What
Has Been the Impact of COVID-19 on Debt?,
The Aftermath of Debt Surges,
and A
Mountain of Debt: Navigating the Legacy of the Pandemic.
For our comprehensive database
of fiscal space indicators, see A
Cross-Country Database of Fiscal Space. For our other periodical products, please visit:
Commodity Markets Outlook
and
Global Monthly. (...)
M. Ayhan Kose
Chief Economist and Director of Prospects Group
Equitable Growth, Finance and Institutions
World Bank Group
T +1 (202) 473-8350
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