Global growth will slow down this year and a worst-case scenario is not ruled out under Omicron’s effect. This variant of Covid-19, which is spreading like wildfire on all continents, accentuates a labor shortage and logistical problems. In this worst-case scenario, “most of the shock would be felt in the first quarter of 2022, followed by a notable rebound in the second quarter,” says the World Bank.
The institution revised its forecast for global GDP growth for 2022 down 0.2 points to 4.1%. But, according to different hypotheses, “the simultaneous economic disruption caused by Omicron could further reduce global growth this year, by 0.2 to 0.7 percentage point,” the institution says, which would bring growth to 3, 9% or even 3.4%.
“The Omicron variant shows us once again that the pandemic is still with us and we have to learn to live with it,” said Ayhan Kose, head of forecasts for the World Bank. He stresses that this fourth wave results for the moment less restrictions than the initial wave of 2020. “And if the wave were to subside soon, the economic impact would be rather benign”.
But “if the variant were to take hold for a long time, with the number of infections remaining high and pressurizing health systems, then growth would be weaker”, he adds. For in such a scenario, labor shortages would be more acute, further disrupting global supply chains and fueling inflation. Faced with galloping inflation, the American central bank (Fed) could suddenly raise rates, which would increase the cost of borrowing for emerging countries, already subject to record debt.
In this context, business and household confidence is likely to erode. Ultimately, consumption and trade flows, the engine of global growth, risk slowing down further.
The United States and China not spared
Ayhan Kose stresses that vaccination remains the key element. Because the threat of new, more transmissible or virulent variants will persist until a substantial part of the world’s population is vaccinated. At the current rate of vaccination, “only about a third of the population of low-income countries will have received even a single dose of vaccine by the end of 2023,” she laments in his report.
The two leading powers in the world, the United States and China, engines of global growth, are not spared by the slowdown and the threat of Omicron, also notes the World Bank. US growth has thus been revised down sharply for 2022 to 3.7% (-0.5 point) after 5.6% in 2021 (-1.2 point). And “stubborn inflation and an even faster tightening of monetary policy could lead to weaker than expected growth.”
Chinese growth is now estimated at 5.1% (-0.3 point) against 8% (-0.5 point) in 2021. It is decelerating “more than expected”, notes the institution. “The possibility of a marked and prolonged slowdown in the heavily indebted real estate sector – and its potential effects on house prices, consumer spending and local government financing – constitutes a significant downside risk to the outlook” of the Chinese economy, concludes the Bank.
The International Monetary Fund (IMF) is due to release its own forecast on January 25.