By Andrea Shalal

WASHINGTON (Reuters), – On Tuesday, the World Bank reduced its estimates for growth in China, the Euro area, and the United States. The bank warned that the rise in debt, income inequality, and new COVID-19 variants could all threaten recovery efforts in these countries.

According to the report, global growth will slow to 4.1% by 2022, down from 5.5% in 2017. It is likely to drop further to 3.2% by 2023 due to a decrease in demand and government disbursement of massive fiscal and monetary support given early during the pandemic.

The forecasts for 2021 and 2022 were 0.2 percentage points lower than in the bank’s June Global Economic Prospects report https://www.reuters.com/world/world-bank-boosts-growth-forecasts-us-stimulus-vaccines-stoke-demand-2021-06-08. The International Monetary Fund https://www.reuters.com/business/imf-delays-release-new-forecast-jan-25-factor-covid-19-developments-2022-01-04 is also expected to downgrade its growth forecasts in its update on Jan. 25.

In its latest semi-annual forecast the bank predicted a large rebound in economic activity in developed and developing countries in 2021 following 2020 contractions. But, they warned that long-term inflation, labor force and supply issues as well new COVID-19 variations could all slow down global growth.

Ayhan Kose (director of World Bank Prospects Group) said in an interview that there was a “pronounced slowdown” and added, “There is a pronounced slowdown.” “Policy support has been withdrawn, and we face many risks,” Ayhan Kose told Reuters in an interview.

Kose claimed that rapid spread of Omicron’s highly contagious Omicron variant was a sign of continued disruption from the pandemic and suggested that an overflowing healthcare system could result in a drop of up to 0.7% off the global forecast.

COVID-19 has caused nearly 300 million reported infections https://graphics.reuters.com/world-coronavirus-tracker-and-maps worldwide and over 5.8 million deaths, according to data compiled by Reuters. While 59% of the world’s population has received at least one dose of a COVID-19 vaccine https://ourworldindata.org/covid-vaccinations, only 8.9% of people in low-income countries have received at least one dose, according to the Our World in Data website.

Kose stated that the pandemic has increased diverging growth rates within and between developed and emerging economies. This could lead to more social tensions.

According to him, the risk of a hard landing for emerging countries was increasing due to their limited ability and financial vulnerability as well as persistent inflationary pressures.

It predicted that growth would drop to 3.8% from 5% by 2021. In 2023 it will fall further to 2.3%. But, the report said they expect their investment and output to return to their pre-pandemic level by 2023.

The bank reduced its U.S. Gross Domestic Product growth for 2021 by 1.2 percentage points, to 5.6%. It also forecast lower growth at 3.7% growth in 2022 and 2.6% 2023. The bank forecast that Japan’s GDP would grow by 1.7% by 2021. This is 1.2 percentage points lower than the June prediction and will rise to 2.9% 2022.

China’s GDP growth was forecast to increase by 8% in 2021. That is about 0.5 percentage points less that previously predicted. However, China’s growth rate could slow down to 5.1%-2022 and 5.2%-2023.

In 2022, growth in emerging and developing countries is projected to fall to 4.6% from 6.3% in 2021. It will edge lower to 4.4% for 2023. This would mean that their output would continue to be below the trend of 4% before the pandemic.

While fragile and conflict-affected countries will still be 7.5% lower than their pre-pandemic trend small island states will fall to 8.5%.

The bank noted that rising inflation — which hits low-income workers particularly hard — was at its highest since 2008 in advanced economies, and the highest since 2011 in emerging and developing economies.

Kose stated that rising interest rates pose additional risk and may further undercut growth projections. This is especially true if rates are increased in the United States or other large economies this spring.

The pandemic, he said, had also driven global total debt to its highest point in 50 years. Concerted efforts are needed to speed up debt restructuring efforts and engage private sector creditors.

This pandemic has dramatically increased inequality worldwide in income, growth, healthcare and job loss. It also hit women hard, as well as low-skilled workers and those who are not formalized.

Kose stated that “this trend could leave lasting scars”, noting how disruptions to education could have a devastating effect on human capital over the next generation.