Covid-19 has demonstrated that 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 all. In 2022, global economic growth will stall, with expansion in many developed and developing economies falling short of the key threshold of 3 percent that is needed to double per capita income in a generation.
Next year, rebooting global economic growth will also be difficult as large regions of the world remain unvaccinated and global trade and investment continue to be disrupted.
To further complicate matters, the tools governments have traditionally employed to jump-start recovery have already been used extensively, and policy’s ability to drive growth is reaching its limits. Interest rates have been stuck at historically low levels in the US and UK, and at negative interest rates in Europe and Japan. Many countries are heavily indebted. In 2020, the debt-to-GDP ratio in the US and the UK was over 100 percent.
These rising rates of national debt are likely to constrain public spending and governments’ ability to deliver public goods such as education, health care, infrastructure, and national security, further reducing the possibility for meaningful economic growth.
Even before the pandemic, factors were impeding economic growth. In 2022, these will continue: the proliferation of automation and technological advancements, which may lead to mass unemployment; demographic shifts, including rapid population growth; climate change; and worsening inequality.
The arrival of the global pandemic has intensified many of these concerns, complicating governments’ abilities to drive economic growth in an equitable and sustainable way. Unequal vaccination rates across the world—largely between the developed and developing world—further entrench inequality and delay economic recovery. In Africa, which is home to almost 20 percent of the world’s population, vaccination rates are hovering around 1 percent. It is likely that people in many parts of the emerging world will remain largely unvaccinated throughout 2022, heightening their exposure to new and more infectious variants.
Given the integrated nature of the world economy, the fact that next year emerging economies will still not experience the economic rebound already seen in many developed regions in 2021 means global growth will remain low and slow. Many developed economies have enjoyed a reboot built on the back of mass vaccination and government stimulus packages. However, this recovery will not be sustainable without emerging economies recovering too. Developed countries cannot maintain their economic standing if they can’t sell goods and services abroad.
Next year, we will see even more clearly how intertwined the fate of the global economy is and realize that any hope of a global economic recovery cannot be achieved as long as developed and developing countries remain on two different tracks.
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