World Bank Warns of Slowdown In Global Economy

David Malpass of the World Bank states that the global economy faces a ‘grim outlook’ with the pandemic aftershocks continuing to weigh growth, particularly in poorer countries.

Malpass’s organisations latest forecasts show global growth falling from 5.5% to 4.1% this time last year, reflecting the continuing COVID-19 spikes we can see from the new Omicron variant which has reported a record number of daily cases since the beginning of the pandemic. As well as that, there has been decreased fiscal and monetary support, seen in the diagram below.

The spending in 2021 on Non-Covid tasks has decreased from 2020 due to the higher levels of financial debt which the government has built up from the high spending for Covid tasks in 2020.

This would mean that there is less government spending on infrastructure which would not enable the government to increase its potential output and increase the Long-Run Aggregate Supply Curve.

Malpass has stated that his greatest worry is the global inequality widening, "The big drag is the inequality that's built into the system,". COVID has highlighted the countries with worse healthcare and made it difficult for them to decide between lockdown and people losing their jobs. As well as that data showed that 60% of households surveyed in EMDEs experienced a loss of income in 2020, while those in low-income countries were hit hardest

It was also noted that poorer countries attempting to fight inflation became more vulnerable to economic damage. As we can see from Sri Lanka's difficulties to gain imports and therefore needing to increase prices to make up for the deficit in supply. However, this could lead to uncontrollable prices, a decrease in the value of money and an increase in inflation.

The World Economic Forum (WEF) has said that due to divergent economic recoveries it was harder to cooperate on collective dilemmas, such as climate change.

The bank, which lends to countries around the world, also warned that supply chain bottlenecks and the unwinding of stimulus programmes posed risks. We have seen supply problems most recently in the UK with the shortage of HGV drivers which in turn led to a fuel crisis in the UK for many weeks which drove the price up significantly.

It can be said that the driving force behind the slowdown in China is because of their economic growth dropping from 8% last year to 5.1% this year. China can be deemed as a hegemonic state and with the steep decrease in economic growth, it will, in turn, take a toll on external demand in emerging and developing countries, as a lot of the world's exports come from China.

Other major economies including the United States and countries in the eurozone are expected to slow down this year, the bank said. It added that a resurgence in Covid infections, due to the highly contagious omicron variant, will likely disrupt economic activity in the near term and could worsen growth projections if it persists.


Written by Rohan Dhir

Research compiled by Jonas Theaker


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