Covid-19 has shown We need to confront deep flaws in the global economic system. But without strong economic growth, the world will struggle to emerge from the pandemic, let alone reform the global economy in ways that are better for everyone. In 2022, global economic growth will stall, with expansion in many advanced and developing economies slowing beyond the key 3 percent threshold needed to double per capita income in a single generation.
In the year ahead, revitalizing global economic growth will also be difficult as large areas of the world remain vulnerable and global trade and investment continue to be disrupted.
To further complicate matters, the tools traditionally used by governments to initiate recovery have already been used on a large scale, and the ability of policy to drive growth is reaching its limits. Interest rates have been stuck at historically low levels in the US and UK, and negative interest rates in Europe and Japan. Many countries are burdened with debt. In 2020, the debt-to-GDP ratio in the US and UK was over 100%.
These rising rates of national debt are likely to constrain public spending and the ability of governments to provide public goods such as education, health care, infrastructure and national security, further reducing the possibility of meaningful economic growth.
Even before the pandemic, factors were holding back economic growth. In 2022, these will continue: the spread of automation and technological progress, which could lead to mass unemployment; demographic shifts, including rapid population growth; Climate change; and exacerbating inequality.
The arrival of the global pandemic has intensified many of these concerns, complicating the abilities of governments to drive economic growth in a fair and sustainable manner. Unequal vaccination rates around the world – largely between the developed and developing worlds – further entrench inequality and delay economic recovery. In Africa, which is home to nearly 20 percent of the world’s population, vaccination rates are hovering around 1 percent. People in many parts of the emerging world will likely remain largely unvaccinated throughout 2022, increasing their exposure to new and more infectious variants.
Given the integrated nature of the global economy, the fact that emerging economies next year will not experience the economic recovery that we have already seen in many developed regions in 2021 means that global growth will remain low and sluggish. Many advanced economies have enjoyed the restart built on the back of mass vaccination and government stimulus packages. However, this recovery will not be sustainable without emerging economies also recovering. Developed countries cannot maintain their economic position if they cannot sell goods and services abroad.
Next year, we will see more clearly how intertwined the fate of the global economy is and realize that any hope for a global economic recovery cannot be achieved as long as developed and developing countries remain on different paths.
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