World Bank sees sharp world growth slowdown
Omicron to deter recovery prospects in 2022
Tourism dependent economies to face major headwinds
Only one in 10 World Economic Forum members surveyed expects the global recovery to accelerate over the next three years, a poll of nearly 1,000 business, government and academic leaders found, with only one in six optimistic about the world outlook.
On Tuesday, The World Bank also cut its forecasts for economic growth in the United States, the Euro area and China and warned that high debt levels, rising income inequality and new coronavirus variants threatened the recovery in developing economies.
Threat from Omicron is actually quite potent. Despite visible green shoots in key macroeconomic indicators in the first half, the emergence of Omicron variant and its fast spread has made the global economic recovery increasingly uneven towards the tail end of 2021. Precisely, due to this GlobalData, a leading data and analytics company, has also revised down the global economic growth forecast for 2022 from 4.6% in July to 4.5% in December 2021.
GlobalData forecasts the US real GDP growth to be 1.1% in Q1 2022 compared to 1.3% in Q4 2021. With challenges to supply chains and high infection rates, the UK’s real GDP growth is forecasted to slow down to 0.7% compared to 0.9% during the same period. On the other hand, with additional support from the government, Japan’s growth is expected to rise from 1.3% to 1.6%.
Gargi Rao, Economic Research Analyst at GlobalData, comments: “The rapid spread of Omicron in more than 100 countries along with rising global inflation rates, energy crisis stemmed out of coal shortages, political tensions and slowdown in manufacturing output amid chips shortage remain the major downside risks to global growth in 2022.”
Climate change was seen as the number one danger by respondents in the WEF’s annual risks report on Tuesday, while erosion of social cohesion, livelihood crises and mental health deterioration were identified as risks which had increased the most since the start of the COVID-19 pandemic.
“Global leaders must come together and adopt a coordinated multi-stakeholder approach to tackle unrelenting global challenges and build resilience ahead of the next crisis,” Saadia Zahidi, WEF managing director, said.
Extreme weather was considered the world’s biggest risk in the short term and a failure of climate action in the medium and long term – two to 10 years, the survey showed.
Agreement at the U.N. COP26 climate conference in November last year was widely applauded for keeping alive prospects of capping global warming at 1.5 degrees Celsius, but many of the nearly 200 nations had wanted to leave the conference in Glasgow with more.
On the other hand, World Bank said that 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 as pent-up demand dissipates and governments unwind massive fiscal and monetary support provided early in the pandemic.
The forecasts for 2021 and 2022 – the first by a major international institution – were 0.2 percentage point lower than in the bank’s June Global Economic Prospects report, and could be knocked even lower if the Omicron variant persists.
The International Monetary Fund is also expected to downgrade its growth forecasts in its update on Jan. 25.
GlobalData also says that advanced economies including the US, the UK and other European countries are losing momentum in terms of economic activity, which strongly picked up in H1 2021. Emerging markets continue to underperform due to uneven vaccination drive, less room to manoeuvre for additional policy support, as well as the Chinese economic slowdown.
GlobalData’s Gargi Rao continues: “Despite the risks and the expected slowdown in economic growth, India and China are expected to drive the global growth in 2022. On the other hand, the Federal Reserve is expected to tighten monetary policy measures to tame high inflation levels may result in capital outflows from emerging nations.”
During December 2021, around 12,000 flights were cancelled globally owing to surge in Omicron variant cases and staffing issues. Tourism dependent economies are expected to face major headwinds to growth prospects in early 2022 with re-imposition of restrictions. However, the disruption will be short lived as travel plans are postponed. GlobalData travel and tourism database forecasts the number of air passengers globally for long haul and short haul to grow by 44% and 48%, respectively, in 2022.
As we progress to 2022, supply chain bottlenecks are expected to ease with production picking up. The overall business outlook remains positive, but Omicron scare, and tight monetary policy might cloud investments. In addition, a premature withdrawal of policy support could undermine the global recovery and increase private and public sector vulnerabilities in early 2022. The pull back of public spending in 2022 in most of the countries might put brakes on economic activity.
Rao concludes: “The risk to global economic recovery in 2022 seem balanced. Globally, households have accumulated huge savings, which once invested will drive up economic activity. Moreover, countries like China and India are investing in green energy, which could attract more investments from the West. The approval of The Regional Comprehensive Economic Partnership (RCEP) deal is expected to bolster trade opportunities in the Asia-Pacific region. The need of the hour is to have clear supervision by fiscal and monetary authorities on their policy strategies, which will be crucial to maintain market confidence and public support.”