And the plot glooms…
2022 is the year many had projected that the world economy will fully recover from the pandemic. Not until Omicron struck, dampening the upbeat recovery mood. With the worst of the pandemic behind us and the risk of multiple waves and mutants ahead, economic expectations are being dimmed, the most recent being the International monetary fund (IMF). The IMF expects global growth to moderate from 2021 levels (5.9%) to 4.4%,50bps lower than their October projection. Towing the same path earlier in the month but with a less severe markdown, the World Bank also downgraded its economic projections for2022 by 20bps to 4.1%.
A major cause for softening will be the rollback of pump-priming by both fiscal and monetary policymakers. These, in addition to ongoing supply chain bottlenecks, elevated inflationary pressures, and elevated risks of financial vulnerability in large parts of the world could increase the risks of a hard landing. Therefore, the global economy enters 2022 in a weaker position than previously expected. WhileCOVID-19 continues to cast a shadow over the growth prospects of major economies, developing countries are facing severe long-term problems related to lower vaccination rates, tightening of global macroeconomic policies, and unsustainable debt burdens.
Although the downward adjustments are a reflection of clouds gathering over the recoveries in the US and China, the anticipated adverse impact of expected global economic challenges on some emerging markets including Mexico, Brazil, and South Africa also contributed to the downward review. However, with a 50bps upward review in its January projection, India is not letting the growth engine leave its shores. The persistence of elevated price levels and income inequality in emerging and developing economies could dent their economic recovery.
The ineffectiveness of global measures to address inequality of vaccine access means the COVID-19 virus will be very much around us, and the global economy is prone to shocks from reimposed mobility restrictions, supply disruptions, and rising energy prices, that are likely to keep global and local prices elevated through 2022. Likewise, multiple waves and mutants of the virus will lead to a resurgence of infections that will likely bring further damage to public health, disrupt economic activity in the near term, and could worsen growth projections if it persists. The cautious consumers and people taking time off sick are likely to take their toll, slowing the pace of the global economic recovery.
There is no doubt that economic momentum remains strong in 2022, with a number of downside risks that can weaken the engines of growth and add to overall global uncertainty. Thankfully, as the global status of COVID-19shifts from pandemic to endemic, we are better armed with tested medical and policy measures to address its economic consequences. Therefore, the impact of subsequent episodes of the virus on the economy is likely to be less severe than previous episodes.