Signs of a global rebound from the pandemic-induced economic slump will prove to be fleeting, the World Bank warned Tuesday.
As surges of a new variant wreak fresh havoc on supply chains, intensifying logistical bottlenecks and exacerbating inflationary pressures, global growth is poised to decelerate “markedly” from 5.5 percent to 2021 to 4.1 percent in 2022 and 3.2 percent in 2023, the financial institution wrote in a report.
Compared with advanced economies, which are on track to return to business as usual by 2023, output in their emerging counterparts will remain 4 percent below pre-pandemic levels as lackluster healthcare systems, low vaccination rates, widening income losses and a reduction in government support fuel an increasing “divergence of fortunes,” the World Bank said. Fragile and conflict-riddled economies will fare even worse, with their growth falling 7.5 percent short of before-Covid-19 trends, possibly igniting further social discontent among the most vulnerable.
“The Covid-19 crisis wiped out years of progress in poverty,” David Malpass, president of the World Bank, wrote in the foreword. “As government’s fiscal space has narrowed, many households in developing countries have suffered severe employment and earning losses—with women, the unskilled and informal workers hit the hardest.”
Persistent supply-chain logjams have also dealt body blows to these countries, often the last in the global export line. With ports functioning below capacity, pandemic-related delays in orders for new vessels and containers stranded in the “wrong” ports, shipping costs and other hurdles have risen to “unprecedented levels,” he said. Volatile commodity prices and extreme weather events triggered by climate change, too, are sending food insecurity into a downward spiral, placing a heavier toll on health and nutrition that can leave “lasting scars” across generations.
Already, manufacturing hubs such as India are struggling with labor shortages due to rising Covid-19 cases. Migrant workers that fled to their hometowns during the worst of the delta wave were slowly returning, leather goods exporters from Delhi, Mumbai and Kolkata told the Economic Times last week. But the flow has slowed as infections started ticking up again, leaving suppliers scrambling as they’re inundated with orders from the West.
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In Vietnam, garment makers are turning down export orders because of a mix of limited manpower and sky-rocketing freight costs. “Air freight is very expensive, but not all partners share this cost,” Tran Nhu Tung, chairman of Thanh Cong Textile Garment Investment Trading JSC in Ho Chi Minh City, told VnExpress last month. The company’s factory in the southern province of Vinh Long, which produces goods for Adidas, “does not dare” accept new work, he added. China’s zero tolerance for outbreaks is similarly disrupting trade, Grant Thornton analysts wrote in a note to clients earlier this month.
Progress in vaccinations, the World Bank noted, will be key to easing supply-chain disruptions caused by Covid-19 outbreaks. But equally important is the deployment of stronger debt-relief efforts, such as the recent replenishment of the International Development Association, the organization’s fund for the poorest nations, which pulled together $93 billion of financing from 48 high- and middle-income countries and the World Bank’s own contributions. Covid-19, the institution said, has pushed total global debt to its highest level in half a century.
Policymakers in the developing world also face critical longer-term challenges as they consider actions that can “prevent, prepare for and respond” to future crises. To “erase the scars of the pandemic,” any fiscal and monetary reforms must take into account not only investment and human capital but also income and gender inequality and the challenges of climate change, the World Bank added.
“The choices policymakers make in the next few years will decide the course of the next decade,” said Mari Pangestu, the World Bank’s managing director for development policy and partnerships. “The immediate priority should be to ensure that vaccines are deployed more widely and equitably so the pandemic can be brought under control. But tackling reversals in development progress such as rising inequality will require sustained support. In a time of high debt, global cooperation will be essential to help expand the financial resources of developing economies so they can achieve green, resilient and inclusive development.”