COVID takes momentum out of global economy
Pessimistic report of the World Bank
Justin Wong (JW)May 8, 2025
The pandemic has disrupted almost every aspect of life around the world. It has hit companies and their global supply chains hard. Factories and shops have been temporarily closed. Many workers were thrown into the streets and poverty increased.
But by 2021, much of the world had learned to deal with the massive disruptions caused by the spreading coronavirus. Last year global growth increased by 5.5%. But this year is looking less promising, according to the World Bank's new Global Economic Prospects report, released on January 11.
With the unpredictable flare-up of the COVID virus, supply chain issues and reduced government support, growth will slow dramatically, reaching just 4.1% in 2022 and 3.2% in 2023, according to the report. The report is even more pessimistic for the near future due to extremely high transportation costs and higher-than-expected inflation, especially in food and energy.
Much of the expected growth will come from advanced economies such as the US, EU, Australia, Japan, Korea and Israel as they are forecast to return to pre-pandemic growth and production levels soon.
At the same time, emerging and developing economies (EMDE) will largely lag behind, "due to lower immunization rates, tighter fiscal and monetary policies, and lingering scars from the pandemic," the report concludes. Put simply, they need vaccines and many are running out of room to maneuver.
A major global imbalance The most obvious obstacle to economic recovery is sheer uncertainty. Even as vaccine supplies mount, waves of new variants of the coronavirus like Delta and Omicron can wreck plans in weeks or even days as places go into lockdown or regions and states close their borders.
The bank also sees a danger in unprecedented government spending, particularly on stimulus plans. Governments have indeed taken on enormous amounts of debt. In 2020, global debt was 263% of GDP, the highest level in 50 years.
But here, too, the emerging and developing countries are at a disadvantage. Many are in a debt crisis, some are already insolvent. This will inevitably lead to unfavorable credit conditions or no credit lines at all. These countries could also face higher interest rates, increased inflation and unfavorable exchange rates.
The bank is also concerned about rising income inequality. Poverty is growing around the world as many workers have lost their jobs or suffered severe income losses. Those in the lower income brackets, such as women, unskilled and informal workers, have suffered the most, partially reversing the hard-won decline in income inequality over the past 20 years. The authors estimate that 100 million more people could face extreme poverty this year due to the COVID pandemic.
At the same time, the rich are getting richer - a lot richer - as tech stocks and asset prices hit new highs. This rising inequality could lead to social dissatisfaction, particularly in developing countries, warned World Bank President David Malpass in an introduction to the report.
A grand global plan The lender is pushing for more debt relief or debt restructuring for poorer countries. Only when these countries are freed from crushing debt can they focus on health, public services, education, infrastructure and growth, the bank argues.
The report urges "a focus on pro-growth policies to promote green, resilient and inclusive development, and on reforms that expand economic activity to decouple from global commodity markets."
Nonetheless, in 2022-2023, growth in all EMDE regions except East Asia and the Pacific is expected to return to average rates of the decade before the pandemic. Despite this growth, production in all of these regions will most likely remain below pre-pandemic trends.
Overall, two-fifths of the economies of Sub-Saharan Africa and 50% or more of the economies of East Asia and the Pacific, Latin America and the Caribbean, and the Middle East and North Africa will "still be below GDP per capita by 2023 2019," says the report.
Germany is on the right track Rich countries will not have to wait that long for a recovery as their annual output is expected to return to pre-pandemic levels by 2023.
The situation in Germany is looking particularly good as the country has plenty of money for stimulus measures and has got a better handle on the impact of COVID-19. After a sluggish winter and the end of the current wave of coronavirus, the country can expect a strong recovery, not least because of its relatively high vaccination rate.
"All the elements for a recovery are in place," said Sebastian Dullien, macroeconomist at the Hans Böckler Foundation, in a recent interview with DW. The only thing the government has to do is "to protect companies from going bankrupt over the winter".
In the past year, many industries have been slowed down by supply problems, above all by the lack of the semiconductors that are so important. On the other hand, German consumers have saved 200 billion euros ($226 billion) more than they would have saved otherwise, "and that's what they'll spend once infections start to go down in the spring," Dullien said.
