The rapid spread of the Omicron COVID-19 variant has put the brakes on a rapid recovery, counteracting signs of solid growth at the end of last year, according to the United Nations.
The 2022 World Economic Situation and Prospects (WESP) report by the UN Department of Economic and Social Affairs (DESA), cites a cocktail of problems that are slowing down the economy, namely new waves of Coronavirus infections, persistent labour market and lingering supply-chain challenges, and rising inflationary pressures.
In the foreword, UN Secretary General António Guterres said the human, economic and social toll of the pandemic has been devastating. Rising poverty, job losses, shredded safety nets, health-care systems pushed to the brink, and the impacts of a changing climate are placing the Sustainable Development Goals further out of reach. “Inequalities are intensifying, setting the stage for an uncertain, uneven and unfair recovery. In some countries, ambitious vaccination roll-outs and bold economic support and stimulus packages are paving the way towards recovery. But progress is not being shared equally. More than a quarter of developing countries have yet to achieve their pre-pandemic levels of output,
hampered by severely inadequate access to vaccines and limited financial resources. Job creation has been insufficient to make up for earlier losses, with employment deficits disproportionally affecting women and youth,” he said.
GLOBAL GROWTH MOMENTUM IS LOSING STEAM
In the report, the UN says that after a global contraction of 3.4 per cent in 2020 and following an expansion of 5.5 per cent in 2021, the highest rate of growth in more than four decades, the world economy is projected to grow by four per cent in 2022 and 3.5 per cent in 2023.
The report mentions that growth impetus generally has been weaker in most developing countries and economies in transition. While higher commodity prices have helped commodity- exporting countries at large, rising food and energy prices have triggered rapid inflation, particularly in the Commonwealth of Independent States (CIS) and Latin America and the Caribbean. Recovery has been especially slow in tourism-dependent economies, notably in the small island developing States, the report stated.
CLOSE THE INEQUALITY GAP’
Noting that the time is now to close the inequality gaps within and among countries, António Guterres said “we must act across a wide range of challenges – from addressing illicit financial flows, to injecting more fairness into the global tax system, and encouraging more private investment into developing countries. We must also overhaul the international debt architecture, so developing countries can access the financing and debt relief they need to spur recovery in the short term and invest in resilient and sustainable development over the longer term. This must include investments in education systems, universal health coverage and social protection, jobs in the green, digital and care economies, and access to COVID-19 vaccines for all, so we can put the
pandemic behind us.”
Meanwhile, Under Secretary General of the United Nations Department of Economic and Social Affairs Liu Zhenmin, drew attention to the importance of a coordinated, sustained global approach to containing COVID-19 that includes universal access to vaccines, and warned that, without it, “the pandemic will continue to pose the greatest risk to an inclusive and sustainable recovery of the world economy”.
According to current forecasts, half of the world’s economies will exceed pre-pandemic levels of output by at least seven per cent in 2023. In East Asia and South Asia, average gross domestic product (GDP) in 2023 is projected to be 18.4 per cent above its 2019 level, compared to only 3.4 per cent in Latin America and the Caribbean, the report stated.
MAJOR UNCERTAINTIES AND RISKS
With new waves of infections spreading quickly, the United Nations states that human and economic tolls are expected to increase. Rising inflationary pressures in major developed economies and a number of large developing countries present additional risks to recovery. Global headline inflation rose to an estimated 5.2 per cent in 2021, more than 2 percentage points above its trend rate in the past 10 years. The inflationary pressure was particularly pronounced in the United States, the euro area and Latin America and the Caribbean. A faster-than-expected tightening of global monetary conditions represents another major challenge. Any unexpected shifts in the monetary policy stances of the Federal Reserve in the United States could abruptly change investor expectations and trigger large adjustments in portfolio allocations, while significantly altering capital flows to developing countries, the report said.
INTERNATIONAL TRADE AND INVESTMENT
International trade performance was mixed in 2021. Merchandise trade bounced back, with global trade in goods surpassing the pre-pandemic level. Trade in services has remained subdued, however, as many cross-border services, particularly international travel and tourism, have yet to recover. Our baseline scenario projects that global trade in goods and services will grow by 5.7 per cent in 2022 after an expansion of 11 per cent in 2021.
LABOUR MARKET RECOVERY LAGGING
Employment levels are projected to remain well below pre-pandemic levels during 2022–2023 and possibly beyond. The pace of job creation has been largely inadequate to offset earlier employment losses although the picture varies across regions. In developed economies, full employment recovery is projected in 2023 or in some cases in 2024. The developing economies, especially those in Africa, Latin America and the Caribbean, and Western Asia, are expected to see much slower recovery of job
The number of people living in extreme poverty globally is projected to decrease slightly to 876 million in 2022 but is expected to remain well above pre-pandemic levels. Fast-developing economies in East Asia and South Asia and developed economies are expected to experience some poverty reduction. In contrast, poverty is forecast to further increase in the world’s most vulnerable
HIGHER INEQUALITY MAY EMERGE AS A LONGER-TERM LEGACY
For the vast majority of developing countries, a full recovery of GDP per capita will remain elusive. Uneven recovery of employment and income across different population groups is increasing inequalities within countries. In particular, the crisis has exacerbated the gender divide, especially in developing countries, where women experienced a sharper decline in employment and labour force participation than men. Many women face serious barriers to re-entering the labour force, especially women with young children. Support for unpaid domestic work, including childcare, will remain crucial f o reversing the gender divide in the recovery of jobs.
OTHER KEY AREAS
- Governments around the world will need to continue accommodative fiscal stances and avoid the temptations of premature fiscal consolidation.
- For many developed country central banks, APPs, often referred to as quantitative easing, have become the primary tool for monetary stimulus during the COVID-19 crisis.
- Large-scale buy-backs negatively affected investment and capital accumulation and reduced firms’ abilities to cope with an economic downturn, especially if buy-backs are increasingly funded with new debt.
- Prolonged period of ultra loose monetary policies, with central banks pumping massive amounts of liquidity into financial markets to keep long-term interest rates low, created significant macroeconomic and financial vulnerabilities.
- Rapidly rising interest rates could add considerable pressure to public finances
- Robust economic expansion of the United States slowed amid mounting inflationary pressures
- Economy of European Union confronts strong headwinds and surging inflation
- China’s economy faces near-term challenges, while pursuing high-quality growth
- Lifted restrictions and higher commodity prices underpin recovery in the Commonwealth of Independent States and Georgia; economic activity rebounds in South-Eastern Europe
- New COVID-19 waves and an uncertain policy environment cloud Africa’s recovery prospects
- After solid economic recovery, downside risks are rising for East Asia
- South Asia’s recovery gathers momentum but more constrained policy space and downside risks lie ahead
- Uneven recovery among Western Asian economies points to further polarization
- Latin America and the Caribbean’s recovery is losing traction amid fading external tailwinds and tighter macroeconomic policies