Global growth has slowed down, inequality still on the rise, the World Bank warns

The global economy is entering a phase of “pronounced slowdown,” as the Omicron variant, inflation, high government debt levels, and rising income inequality threatens recovery in emerging and developing economies, the World Bank warned on Tuesday.

The World Bank’s latest Global Economic Prospects report sees global economic growth downshifting from 5.5% in 2021 to 4.1% in 2022 – an outlook that is more pessimistic than the past year.

Throughout the pandemic, the bank has been ringing the danger bells regarding the growing levels of inequality both within and between nations – and its latest outlook is no exception.

In developing economies, many governments lack the spending power to kick-start the wanted growth, as swelling prices for assets like stocks and real estate continue to make the rich even richer while stoking inflation that hits low-income households especially hard.

Unlike more developed economies, emerging and developing countries have less monetary wiggle room to let inflation run hot. Many have already raised interest rates several times to keep price pressures in check, but that policy tool also cools economic activity.

“This increasing divergence of fortunes is especially troubling given the possibility of social discontent in developing countries,” the bank warned.

Growing uncertainty due to the rapidly-spreading Omicron variant has widened inequality, the bank noted, disrupting economic activity that is already being hampered by supply chain bottlenecks.

Shortages of raw materials and the resulting volatility in commodity prices, as well as “extreme weather events driven by climate change are aggravating food insecurity risks, further burdening health and nutrition,” said the report.

Richer nations are expected to see a deceleration in economic growth from 5 percent last year to 3.8 percent this year and 2.3 percent in 2023 – a moderating pace that the bank said will “be sufficient to restore output and investment to their pre-pandemic trend in these economies.”

“For many vulnerable economies, the setback is even larger,” the bank said, noting that “output of fragile and conflict-affected economies will be 7.5% below its pre-pandemic trend, and output of small island states will be 8.5% below.”

The bank continues to call for nations to prioritize coronavirus vaccine equity to bring the pandemic “under control,” as it presses for accelerated debt relief efforts to help low-income countries that are under stress.