As we are approaching the three-year mark since the Pandemic first hit us, we are seeing a decline in global growth as countries have had to combat this crisis leading to new policies and schemes being introduced.
The most recent Global Economic Prospects report predicts that global growth will decelerate from 5.5% in 2021 to 4.0% in 2022, even dropping to 3.2% in 2023 with demand dissipating and monetary support unwinding around the world.
Many economic challenges have arisen in emerging markets and developing economies (EMDEs), some of which include elevated inflation, record debt levels and rising income inequality.
Among EMDEs, growth is expected to drop from 6.3 per cent in 2021 to 4.6 per cent in 2022 and 4.4 per cent in 2023. Director of the Prospects Group at the World Bank, Ayhan Kose said “Advanced economies and emerging markets and developing economies are on two different flight paths”.
We see this occurring because of the amount of funding available to these EMDEs being significantly lower than advanced economies. Only 55% of EMDE countries are vaccinated. Compared to 75% in advanced countries. And only 8% of the population in low-income countries have received at least one dose. This is because the accessibility of getting these vaccinations is a lot lower in these less developed countries. Therefore the virus continues to be a key dilemma that these countries are struggling to resolve.
Commodity prices soared, with prices of several commodities reaching all-time highs last year, which was followed by a steep and broad-based slump in 2020. We are continuing to see commodities rise in price this year, one of which being an inelastic good to most- oil. As these commodities rise in price, imports become more expensive and countries struggle to keep their supply up with their demand.
We are seeing output levels of EMDEs excluding China being about 6% lower than those of advanced economies which just highlights how much these economies are struggling to bounce back from covid.
Global debts skyrocketed to a total of 263% of GDP reaching its highest total debt in 50 years. The surge in debt, alongside the COVID-induced economic global recession, has increased debt vulnerabilities in EMDEs. Meaning there is less fiscal power from these economies as they are less able to invest in critical infrastructure and other important sectors.
As the somewhat new variant is continuing to cause problems, the economic and political struggles are assumed to continue to disrupt economic activity: as we have seen from the UK where workers have been told to work from home where possible. This would significantly decrease productivity for firms and halt economic progress, as we are seeing.
However, in some countries such as the UK, we are seeing the removal of some restrictions and therefore the re-opening of the economy. Although it is clear that advanced economies will make more progress than EMDEs and be able to ease restrictions earlier.
Written by Rohan Dhir