Global Growth to Slow through 2023, Adding to Risk of ‘Hard Landing’ in Developing Economies

Spread of COVID-19 Variants Alongside Inflation, Debt, and Inequality Intensifies Uncertainty

WASHINGTON, Jan. 11, 2022—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.

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 hard landing.

“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 these economies. 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 complete.

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.”

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 generations.

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 climate change.”

Download Global Economic Prospects here.

Regional Outlooks:

East Asia and Pacific: Growth is projected to decelerate to 5.1% in 2022 before increasing slightly to 5.2% in 2023. For more, see regional overview.

Europe and Central Asia: Growth is forecast to slow to 3.0% in 2022 year and 2.9% in 2023. For more, see regional overview.

Latin America and the Caribbean: Growth is projected to slow to 2.6% in 2022 before increasing slightly to 2.7% in 2023. For more, see regional overview.

Middle East and North Africa: Growth is forecast to accelerate to 4.4% in 2022 before slowing to 3.4% in 2023. For more, see regional overview.

South Asia: Growth is projected to accelerate to 7.6% in 2022 before slowing to 6.0% in 2023. For more, see regional overview.

Sub-Saharan Africa: Growth is forecast to accelerate slightly to 3.6% in 2022 and rise further to 3.8% in 2023. For more, see regional overview.

Source: World Bank. 1. Headline aggregate growth rates are calculated using GDP weights at average 2010-19 prices and market exchange rates. The aggregate growth rates may differ from the previously published numbers that were calculated using GDP weights at average 2010 prices and market exchange rates. Data for Afghanistan and Lebanon are excluded. 2. GDP growth rates are on a fiscal year basis. Aggregates that include these countries are calculated using data compiled on a calendar year basis. Pakistan's growth rates are based on GDP at factor cost. The column labeled 2019 refers to FY2018/19. 3. GDP growth rates are on a fiscal year basis. Aggregates that include these countries are calculated using data compiled on a calendar year basis. The column labeled 2019 refers to FY2019/20. 4. World growth rates are calculated using average 2010-19 purchasing power parity (PPP) weights, which attribute a greater share of global GDP to emerging market and developing economies (EMDEs) than market exchange rates. 5. World trade volume of goods and nonfactor services. 6. Oil price is the simple average of Brent, Dubai, and West Texas Intermediate prices. The non-energy index is the weighted average of 39 commodity prices (7 metals, 5 fertilizers, and 27 agricultural commodities). For additional details, please see Note: e = estimate; f = forecast. World Bank forecasts are frequently updated based on new information. Consequently, projections presented here may differ from those contained in other World Bank documents, even if basic assessments of countries’ prospects do not differ at any given date. For the definition of EMDEs, developing countries, commodity exporters, and commodity importers, please refer to table 1.2. EM7 includes Brazil, China, India, Indonesia, Mexico, the Russian Federation, and Turkey. The World Bank is currently not publishing economic output, income, or growth data for Turkmenistan and República Bolivariana de Venezuela owning to lack of reliable data of adequate quality. Turkmenistan and República Bolivariana de Venezuela are excluded from cross-country macroeconomic aggregates.

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Six big challenges facing governments in 2021

The year 2020 was full of challenges for world leaders. No country was spared from the COVID-19 pandemic or the related economic, educational and national security crises. Issues of climate change became even more acute than they already were, with a record number of natural disasters, including fires, hurricanes and droughts. And geopolitical instability became a shared experience within and across nations, affecting countries that have been fragile for a long time and those that were previously viewed as stalwarts of democracy and stability. These challenges persist in 2021.

Citizens and businesses are looking to their government leaders to help them navigate and emerge stronger from these large-scale, complex problems. Most stakeholders have accepted that going back to the way things were in 2019 is not an option—or even a goal. Thinking ahead to 2022, they want a better future, informed by the lessons of 2020 and now 2021.

Although the challenges governments face are nearly universal, how leaders go about tackling them might vary significantly, depending on the government structure and ideology. Because the well-being of society as a whole is at stake, potential solutions to need to be inclusive of all.

Six pressing challenges

Rising levels of inequality within and across countries have contributed to the severity of the COVID-19 crisis and created significant geopolitical unrest. Economic and social systems often increase inequality, which can then exacerbate societal polarisation and undermine national safety and security. To reinvent a future that is more sustainable, governments must address six core challenges, with a focus on reducing inequality and promoting shared prosperity. Although each challenge is discrete, together they have significant interdependencies, so a failure to address one is likely to have an adverse effect on others. This is why an executive-level, cross-ministerial, cross-agency plan will be critical to success.

1. Economy. More than 493m full-time-equivalent jobs, most belonging to women and youth, were lost in 2020, and the global GDP declined by 4.3%. The International Monetary Fund noted that this crisis might have been much worse if not for strong government intervention. Governments have provided an unprecedented level of support to businesses and citizens through direct funding, investments, tax reductions and targeted distribution of goods. This level of support, however, has come at a cost of ballooning government debt.

The World Bank is predicting a modest rebound in 2021, with 4% growth in global output, contingent upon broadscale COVID-19 vaccination success and government policies and programmes that promote private-sector growth and reduced public-sector debt.

2. Healthcare. It’s counterintuitive, but global expenditure on healthcare was expected to fall by 1.1% in 2020, driven by delayed or cancelled care for non–COVID-19-related illnesses or treatments. Although patients initiated cancellations in some cases, capacity constraints have also been a big factor—and all of this deferred care is expected to increase healthcare challenges in 2021 and 2022. COVID-19 has highlighted hurdles in almost every element of the healthcare value chain, including supply chains, preventative medicine, primary care and in-patient treatment facilities.

Over the next several months, public health officials must have a dual focus on surge response and vaccine distribution efforts. In the medium and long term, governments will need to assess ways in which they can make the healthcare system more resilient to reduce the impact of future adverse public health events.

3. Education. Before the pandemic, education reform was on the agenda in most countries. It was estimated that 90% of students in low-income countries, 50% in middle-income countries and 30% in high-income countries left secondary school without necessary life skills for navigating work and life. Temporary closures in more than 180 countries at some point during the pandemic compounded the problem, keeping an estimated 1.6bn students out of schools. Most educators have worked tirelessly to deliver remote learning to students, but resources have been limited and results have been mixed. UNICEF estimates that as a result of school closures, 24m children have become dropout risks and many of the 370m children who rely on school meals could experience malnutrition.

In addition to transforming traditional education programmes to better serve all students, governments must determine how to pave the way to a better future via adult education, as well. Addressing unemployment and spurring economic recovery will rely in part on adult reskilling programmes, including digital upskilling. Government leaders must also determine how higher education should be financed if the shift to virtual learning continues.

Educational transformation at all levels will need to include a combination of digital enablement, curriculum revision, the use of new learning methods, upskilling of teachers and structural redesign.

4. National safety and security. The mandate of defence and security forces has broadened and will continue to be critical. More than 91% of the world’s population has been under some form of lockdown and border restriction since the onset of the pandemic. Police and security agencies, technology and private contractors have been used to monitor and enforce restrictions. In addition, border management policies continue to shift based on new data on the virus and vaccines.

Crime, including domestic violence, robberies and looting, has increased in many countries during the pandemic. So have political events, including rallies and protests. Researchers speculate that lockdown, unemployment and desperation among citizens have played a role in intensifying these crimes and events. Some rallies and protests have also been deemed “super-spreader” events, escalating COVID-19 transmission due to a lack of social distancing and mask wearing among participants.

Digital security has emerged as a risk equal to or greater than physical security. Cybercrime has increased dramatically as governments and businesses race to become more digital. In a post-lockdown environment, governments must address risks associated with their digital agenda, in addition to security and stability challenges related to immigration, border management and political events.

5. Climate. While the world has battled COVID-19, the war against climate change has continued. NASA officially ranked 2020 as tied for the hottest year on record, and the past seven years have been the warmest in human history. Extreme weather-related events, including hurricanes, wildfires, floods and heatwaves, were prolific in 2020.

Governments have set ambitious climate agendas, with commitments to create policies, regulations and incentives to accelerate decarbonisation. But only two nations are currently meeting their Paris Agreement targets. Many might be able to make a positive impact through “green recovery” programmes and other related measures to direct stimulus funding to clean energy businesses, sustainable production and green infrastructure. Even governments that are not supporting a clean energy agenda must consider strategies for disaster preparedness and climate adaptation.

6. Trust in government. Disinformation around the world costs an estimated US$78bn annually, not including societal impacts. In many countries, it erodes trust in government leaders and influences the course of elections. The lack of clear structures, roles and efficient responses to citizens’ pressing concerns and needs only compounds the loss of trust. Trust in governments rose at the beginning of the COVID-19 pandemic, but through the course of the response, governments have come to be perceived as the least ethical and least competent stakeholder, according to the 2021 Edelman Trust Barometer.

Most governments did not pivot from traditional operating models to employ the agile, whole-of-government approach required for today’s interconnected, rapidly evolving agenda. Ministries and agencies must work together. The current crisis has also highlighted how a lack of clarity about the roles and responsibilities of national versus subnational governments leaves constituents feeling vulnerable.

By a wide margin, Americans view inflation as the top problem facing the country today

The public views inflation as the top problem facing the United States – and no other concern comes close.

Seven-in-ten Americans view inflation as a very big problem for the country, followed by the affordability of health care (55%) and violent crime (54%).

About half say gun violence and the federal budget deficit are very big problems (51% each), according to a Pew Research Center survey conducted April 25-May 1 among 5,074 U.S. adults. More than two years into the coronavirus pandemic, just 19% of Americans rate the coronavirus outbreak as a very big problem for the country, the lowest share out of 12 issues included in the survey. In June 2020, in the early stages of the outbreak, 58% rated it as a very big problem, placing it among the top concerns at the time.

How we did this Pew Research Center conducted this study to better understand Americans’ views of the major problems facing the country. For this analysis, we surveyed 5,074 U.S. adults in April and May 2022. Everyone who took part in this survey is a member of the Center’s American Trends Panel (ATP), an online survey panel that is recruited through national, random sampling of residential addresses. This way nearly all U.S. adults have a chance of selection. The survey is weighted to be representative of the U.S. adult population by gender, race, ethnicity, partisan affiliation, education and other categories. Read more about the ATP’s methodology. Here are the questions used for this report, along with responses, and its methodology.

With few exceptions, Republicans and Democrats differ over what they see as major national problems. Inflation is by far the top concern among Republicans and Republican-leaning independents, 84% of whom say it is a very big problem in the country today.

A much narrower majority of Democrats and Democratic leaners (57%) view inflation as a very big problem. Among Democrats, larger shares see gun violence (70%), the affordability of health care (65%) and climate change (63%) as very big problems.

Democrats are nearly four times as likely as Republicans to rate climate change as a very big problem (63% vs. 16%). Republicans, by contrast, are far more likely than Democrats to view illegal immigration as a very big problem (65% vs. 19%).

Neither Republicans nor Democrats widely view the quality of public schools as a major problem. Four-in-ten Republicans (41%) and a similar share of Democrats (36%) say this is a very big problem for the country.

While the coronavirus has receded as a major problem over the past two years, so too has unemployment. In the new survey, just 23% of Americans rate unemployment as a very big problem, down from 41% a year ago and 50% in June 2020. The decline has come among members of both parties.

The share of adults who say racism is a very big problem for the country has declined by 10 percentage points since last April, from 45% to 35%. Most of the change has come among Democrats: 49% now view racism as a major problem, down from 67% about a year ago. Republicans’ views are largely unchanged (14% today, 19% then).

Note: Here are the questions used for this report, along with responses, and its methodology.