The pandemic will slow the economy for the next two years

Story by: Viatori Photography by: OIT Translated by: Alejandra Palencia mié 2, Feb 2022

The COVID-19 pandemic, inflation, debt and inequality will not allow global economic activity to maintain the 2021 rebound. The recovery of emerging and developing countries would be at risk. In Latin America, growth will reach just 2.6% in 2022 and 2.7% in 2023, compared to the world advance of 4.1% and 3.2% estimated for the same years.

Amid uncertainty generated by the variants of the coronavirus and the increase in inflation, debt and income inequality, the world economy will enter a slowdown period this year that will last until the end of 2023, the Bank warned on Tuesday. World.

According to the World Perspectives Report of that institution, after the rebound in 2021, when production increased by 5.5%, in 2022 the advance will be 4.1% and in 2023 the growth will be even lower, 3.2%, because demand will decline along with fiscal and monetary support around the world.

The outlook will be even worse for emerging and developing economies, whose recovery could be at risk given the slowdown in global engines, such as the United States and China, which will reduce their demand for raw materials produced in these non-industrialized exporting nations.

On the other hand, the new waves of COVID-19, persistent inflation and bottlenecks in supply chains, added to the financial vulnerability of many areas of the world, increase the danger of a “hard landing”, warns the report.

COVID-19 has left many people unemployed. In the image, a street vendor in the streets of Brasilia, the capital of Brazil. Photo: Agência Brasil/Marcelo Camargo

National and international strategies are needed

The president of the World Bank Group, David Malpass, considered that in order to “get more countries on the path to favorable growth, concerted international action and a comprehensive set of policy responses at the national level are required.”

“The global economy is simultaneously facing COVID-19, inflation and policy uncertainty; government spending and monetary policies are entering uncharted territory. Rising inequality and security issues are particularly detrimental to developing countries,” Malpass added.

The World Bank predicts that recovery will be more difficult to achieve than in the past for economies that require debt restructuring.

In addition, climate change may increase the volatility of commodity prices and social tensions may become more acute as a result of the increase in inequality caused by the pandemic.

“These challenges underscore the need to promote widespread vaccination, improve debt sustainability, address climate change and inequality, and diversify economic activity” the report states.

The report clarifies that its projections could worsen in the face of several risk factors, including a synchronized resurgence of the pandemic, further disruptions to supply chains, an uncontrolled increase in inflation, financial stress and possible disasters related to the pandemic. climate change.

These threats particularly loom over emerging and developing countries, which is why the multilateral institution urges them to implement reforms that mitigate vulnerabilities to commodity volatility, reduce inequality and improve preparedness for future crises.

Forecasts for the biennium place Europe and Central Asia as the region closest to its pre-pandemic trajectory and South Asia as the furthest away.

Remittances play a relevant role in emerging and developing economies. Photo: MIOA/Muse Mohammed

Latin America

In Latin America and the Caribbean, growth will slow to 2.6% in 2022 and then increase slightly to 2.7% in 2023 after registering a rebound of 6.7% in 2021 supported by strong demand in key export destinations -United States and China-, the high prices of basic products and the high and constant volume of remittances, especially in Mexico, Central America and the Caribbean.

Inflation has increased throughout the region, and in most cases has exceeded the goals established by central banks due to the consolidation of demand associated with the economic reopening, the increase in food prices and the energy, climate-related disruptions in electricity production and, in some countries, currency depreciation and sharp increases in money in circulation.

At the same time, some countries such as Brazil, Chile and Paraguay are experiencing the worst drought in decades, making it necessary to use more expensive fossil fuels to produce the electricity typically generated from hydropower.

The World Bank calculates that the recovery process towards the levels of Gross Domestic Product (GDP) prior to the pandemic will be uneven in the region and prolonged in some nations.

Per capita income will decline in the region not only relative to advanced economies, but also to those in East Asia, the Pacific, Europe and Central Asia.

Brazil’s economy will slow to 1.4% in 2022 due to limited investor confidence, erosion of purchasing power from high inflation, tightening macroeconomic policy, slowing demand from China and falling iron ore prices. It is then expected to pick up to 2.7% in 2023.

Mexico’s growth, meanwhile, will slow to 3% in 2022 and 2.2% in 2023. Bottlenecks in supply chains are expected to persist during the first half of 2022, while external demand it will be constrained by slowing US growth, and macroeconomic policy will tighten.

In Argentina, the economy will slow to 2.6% in 2022 as private consumption subsides as a result of reduced fiscal stimulus and investment declines.

The strong cyclical rebounds seen in Chile, Colombia and Peru in 2021 will weaken in 2022 and again in 2023.

In Central America, growth will remain strong in 2022, at 4.7%, due to improved prospects for COVID-19 vaccination and continued strong inflows of remittances.

In most Caribbean countries, growth is projected to accelerate in 2022 as a result of a rebound in international tourism.

Everyday scenes in Mexico City during the coronavirus pandemic. Photo: UN Mexico/Alexis Aubin

Risks on the horizon

The World Bank report qualified these perspectives by recalling the exposure of the countries of the region to numerous risks of deterioration, including a sharp increase in the number of COVID-19 cases, financing tensions and stress related to the debt; and disruptions caused by extreme weather events and natural disasters.

“The durability of the economic recovery in Latin America and the Caribbean, as elsewhere, depends on bringing the pandemic under control. Outbreaks of COVID-19, including those caused by new variants of the virus, remain a downside risk even in countries with high vaccination rates.

It also points out that a sudden deterioration in investors’ attitude, especially in an environment of high inflation and large public debt, could lead to difficulties in paying debt service and episodes of capital outflows.

Economic shocks related to extreme weather events, in part linked to climate change, and other natural disasters represent another significant risk not only to regional growth prospects, but also to the integrity and livelihoods of people living in the region. region, stressed the institution.

*Story originally published on the NewsUN site

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