Dark picture: UN warns Covid could slow down global economic recovery in 2022

Global economic recovery will be slowing down in 2022 due to new waves of Covid-19, unrelenting labour market challenges, lingering supply-chain challenges and rising inflationary pressure. Although the global economy expanded by 5.5% in 2021, global output is projected to grow by only 4.0% in 2022 and 3.5% in 2023.

These bleak predictions are made in the United Nations (UN) Economic Situation and Prospects report for 2022. It says the robust recovery in 2021, driven by strong consumer spending and some uptake in investment, as well as trade in goods topping pre-pandemic levels, marked the highest growth rate in more than four decades.

However, the momentum for growth, especially in China, the US and the European Union, slowed down considerably by the end of 2021, as the effects of monetary and fiscal stimuli began to recede and major supply-chain disruptions appeared. Add inflationary pressure in many economies and it paints a dark picture for the year.

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Human and economic toll

Both the human and economic toll of the pandemic are expected to increase again with new waves of infections due to the Omicron variant. “Without a co-ordinated and sustained global approach to contain Covid that includes universal access to vaccines, the pandemic will continue to pose the greatest risk to an inclusive and sustainable recovery of the world economy,” says Liu Zhenmin, under-secretary-general of the UN department of economic and social affairs.

António Guterres, secretary-general of the UN, says the report is a call for better targeted and co-ordinated policy and financial measures at national and international levels. “The time is now to close the inequality gaps within and among countries. If we work in solidarity – as one human family – we can make 2022 a true year of recovery for people and economies alike.”

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Other predictions for economic recovery

Other projections in the report are:

• Output losses relative to pre-pandemic projections will remain substantial in most developing countries, such as South Africa.
• While merchandise trade bounced back, trade in services remained subdued, with cross-border services, particularly international travel and tourism must still recover.
• While investment has rebounded, expanding by 7.5% in 2021, it will likely return to its slow pace before the pandemic, as financial conditions tighten and fiscal support is withdrawn.
• Employment levels are projected to remain well below pre-pandemic levels during 2022 and 2023 and employment growth in developing countries remains weak amid lower vaccination progress and limited stimulus spending.
• Global poverty is projected to remain at record highs, with the number of people living in extreme poverty globally projected to decrease slightly to 876 million in 2022 but expected to remain well above pre-pandemic levels as insufficient fiscal space and the slow recovery of employment in general will undermine poverty reduction, particularly in Africa.
• Higher levels of inequality within and between countries are emerging due to the pandemic.
• A full recovery of GDP per capita will remain elusive for most countries.
• Uneven recovery of employment and income across different population groups is increasing inequalities, including the gender divide especially in developing countries.
• Governments around the world will need to continue accommodative fiscal stances and avoid the temptations of premature fiscal consolidation.
• Unsustainable external debt burdens, additional borrowing during the pandemic and increasing debt-servicing costs have put a rising number of countries on the verge of a debt crisis and they urgently need further and co-ordinated international support for debt relief.
• Re-invigorating multilateralism will remain critical to contain the pandemic and accelerate a robust and inclusive global recovery.
• The asset price bubbles pose a threat to financial stability as the disconnect between financial markets and economic fundamentals continues to widen.
• Higher asset prices have disproportionately benefited the wealthy.
• Central banks face difficult trade-offs in unwinding policy support.
• Rapidly rising interest rates could add considerable pressure to public finances.
• The crisis presents an opportunity for central banks to support climate action.
• The robust economic expansion of the United States has slowed amid mounting inflationary pressures.
• The economy of the European Union confronts strong headwinds, fanned by supply-chain disruptions and shortages of workers.
• China’s economy faces near-term challenges, while pursuing high-quality growth.
• New Covid waves and an uncertain policy environment will cloud Africa’s recovery prospects and the poverty rate is projected to remain elevated, with an increase in the absolute number of people in extreme poverty.
• After solid economic recovery, downside risks are rising for East Asia, while South Asia’s recovery gathers momentum although more constrained policy space and downside risks lie ahead.
• Uneven recovery among Western Asian economies indicates further polarisation.
• Latin America and the Caribbean’s recovery is losing traction amid fading external tailwinds and tighter macroeconomic policies.
• The crisis has undermined and reversed some hard-won achievements in realising the 2030 Agenda for Sustainable Development.
• The international community needs to strengthen and re-invigorate multilateralism to ensure equal and universal access to vaccines, address debt challenges, and accelerate the transition towards low-carbon economies.