GLOBAL ECONOMIC PROSPECTS January 2022.

 World Bank's  Global Economic Prospects January 2022 focuses major developments in the world economy and presents its outlook. According to the report the global economy is set to decelerate amid continued Covid19 flare ups,diminished policy support and lingering supply bottlenecks. The outlook is clouded by various downside risks including virus variants, unanchored inflation expectations and financial stress. If some countries eventually require debt restructuring the recovery will be more difficult to achieve than in the past. Climate change may increase commodity price volatility. Social tensions may enhance as a result of increase in inequality caused by the pandemic. These challenges underscore the need to foster wide spread vaccination, enhance debt sustainability, tackle Climate change and inequality and diversify economic activity. Amidst a mix of encouraging and damaging signals it is obvious that challenging times lie ahead for the world economy and particularly for developing countries as economic stimulus slows and credit conditions tighten. Putting more countries on a favourable growth path will require international action and a comprehensive set of national policy responses.

  Global Economic Prospects (GEP) provides GDP data for the years 2019 to 2023 in terms of  actual for 2019 and 2020 estimated for 2021and forecasted figures for 2022 and 2023. Accordingly real world GDP which was 2.6% in 2019 contracted to -3.4% in 2020,estimated to increase 5.5% in 2021 and forecasted to be 4.1% in 2022 and 3.2% in 2023.For advanced economies it was 1.7 % in 2019 which shrunk to -4.6 %in 2020 increased to 5.0 % in 2021 and forecasted to be 3.8 %in 2022 and 2.3% in 2023.For USA it was 2.3% in 2019 -3.4% in 2020,5.6 % in 2021,3.7 %in 2022 and 2.6 %in 2023.In Euro area from 1.6 in 2019 contraction was severe at -6.4%,l in 2020 5.2% in 2021,4.2% in 2022 and 2.1% in 2023.Among emerging market and developing economies (EMDEs) which recorded 3.8% growth in 2019 contracted only-1.7% in 2020,estimated 6.3% in 2021and forecasted 4.6 % and 4.4 in 2022 and 2023 respectively. China which accounted for the highest growth of 6.0% in 2019 maintained positive growth of 2.2% in 2020 ,estimated 8.0 % in 2021,forecasted 5.1 in 2022 and 5.3 in 2023.India on the other hand recorded 4% growth in 2019 recorded high negative growth rate of-7.3 % in 2020. World Bank's 8.3 % growth estimated for India in 2021-22 is unchanged from its June outlook. But the forecast for 2022-23 and 2023-24  has been upgraded to 8.7% and and 6.8 respectively. It  may be noted here that for India for the  year 2021-22  estimates varied from WorldBank 8.3%, NSO 9.2%,RBI 9.5% OECD 9.4 %.wheras for China 8.0 % by world Bank and 8.1% Chinese authority and OECD. 

 After having recovered in 2021 the global economy is headed towards a pronounced slow down due to the new variants of Covid19, a rise in inflation, debt and income inequality the winding down of fiscal and monetary support and fading of pent up demand. Notable deceleration of major economies USA and China will weigh on external demand in EMDEs,Persistent supply chain bottlenecks and inflationary pressures and elevated financial vulnerabilities in large parts of the world could increase the risk of a 'hard landing'. GEP also points out the possibility of a sharp divergence in growth prospect in advanced economies and EMDEs.By 2023 all advanced economies will have achieved full output recovery;Yet output in EMDEs will remain 4% below pre pandemic levels. EMDEs in general are experiencing a weaker recovery due to slow vaccination progress more muted policy support and scarring effects of the pandemic. Vaccine access remain unequal with very low rates  in low income countries. More over global inflation is expected to remain above its pre pandemic rate this year as well. Investments is expected to be sharply subdued in EMDEs than in advanced economies . In 2023 nearly 40 % of EMDEs  percapita income would remain below their 2019 levels.While growth in Europe,Central Asia, Latin America and the Caribbean are downgraded due faster removal of policy support, in the Middle East andNorth Africa amid higher than expected oil revenues growth upgradation is expected.While omicron infections may cause less severe disease, the  variants ability to spread quickly through vaccinated population could overwhelm exhausted health systems and force governments to tighten control measures causing a significant slow down in near term growth. In all probability Omicron related economic disruptions could substantially reduce growth in 2022.

 Apart from pandemic resurgence persistent supply bottlenecks could further disrupt global economic activity and supply bottlenecks have hit developing countries hard because they are often last in the global supply line,as against countries with greater financial resources and larger orders.Ports operating below capacity, pandemic related delays in orders for new vessels and containers stranded in wrong port have increased shipping costs and supply constraints to unprecedented levels.Global inflation is expected to remain above it's pre pandemic rate this year. In this background of Increased commodity prices,food price inflation and supply shortages world bank call for heightened intervention to provide food security security particularly in fragile and conflict affected countries.

Government spending, deficit and debt in several advanced economies have reached high levels. Central Bank balance sheets have absorbed unprecedented amounts of long term assets financed by reserves resulting in an unequitable allocation of capital. Spending in developing countries also surged much to  support economic activity during crisis. But many countries are now facing record levels of external and domestic debt. With fiscal and monetary policy in uncharted territory ,the impact on exchange rate,inflation debt sustainability and economic growth are unlikely to be favourable for developing countries. On the other hand to soften increased inequality GEP advocate a concerted eff.ort to mobilise external resources  and accelerate debt relief efforts. Recent International Development Association (IDA) replenishment of $ 93 billion world Bank's fund for poorest countries can contain inequality to some extent.Along with growth Domestic innovation ,Digital revolution and social protection systems in health, education and women empowerment will create opportunities to reduce inequality and sustain growth. Obviously a concerted effort to deepen international policy cooperation will be needed to tackle mounting global challenges like low vaccination rates in low  income countries ,unsustainable debt loads in many EMDEs and climate change. This cooperation could lead to richer countries expanding vaccine donations to poorer countries to redress vaccination inequities, helping to reduce debt burdens in EMDEs,lacking fiscal space and accelerating their green energy transitions. 

 GEP has upgraded it's expectations for India's GDP growth to 8.7 % in the financial year 2022-23  to reflect an improving investment outlook with private investment particularly manufacturing benefitting from the production linked incentives (PLI) scheme and start ups and increase in infrastructure investment. It may take one or two years for India to get out of the post pandemic stress.Rising fiscal deficit, inflation, oil price volatility and geo political situation are matters of concern. Even increase in growth rate has not stepped up labour force participation or  conditions of low income households but benefited large corporates. However in the light of increased revenue buoyancy there is much scope for increased capital expenditure and intelligent fiscal stimulus and Direct Beneficiary Transfer. Enhancing fiscal, monetary and trade policy coordination is very much required.