WASHINGTON: The World Bank warned Tuesday that global growth will decelerate “significantly” this year, but the Omicron variant of Covid-19, which is spreading rapidly around the world, could make it worse and exacerbate labor shortages and supply chain disruptions .
In its latest Global Economic Outlook report, the Washington-based development bank lowered its forecast for world economic growth this year to 4.1 percent after rebounding 5.5 percent last year.
Growth forecasts for both last year and this year were 0.2% lower than those released in June.
However, the bank warned that “various downside risks cloud the outlook, including a simultaneous Omicron-driven economic disruption, further supply bottlenecks (and) unanchored inflation expectations,” the report said.
That could further reduce global growth this year to 3.4 percent, down 0.7 percentage points.
World Bank President David Malpass is concerned about the “tremendous toll” the pandemic is taking on people in poor countries, which could have ramifications for the future.
“We’re seeing troubling reversals in poverty, nutrition and health. The reversal and education or scope from schools closures will have a permanent impact,” he told reporters. “I’m very worried about the permanent scar on development.”
Ayhan Kose, head of bank’s forecast unit, told AFP the Omicron strain is causing fewer restrictions than the initial outbreak, which means the overall impact could be more benign.
However, he cautioned, “If it stays around much longer, and cases remain elevated and continue pressuring health systems, under that scenario, the global growth will be lower.”
That would exacerbate ongoing struggles with labor shortages and global production and transportation snarls that have fueled a wave of price increases.
“The Omicron variant shows us once again, the pandemic is still with us and we need to learn how to live with the pandemic,” he said.
Faced with inflation at a 40-year high, the US Federal Reserve is expected to begin raising interest rates soon, and perhaps take more aggressive steps, which will raise borrowing costs for developing countries already burdened with record debt.
That, in turn, could erode business and household confidence, lowering consumption and trade flows, a key engine of global growth.