For the last two decades, incomes in poorer countries were catching up to rich countries. The pandemic economy of the 2020s may reverse the trend, the World Bank warns in a new report.
Why it matters: Falling inequality between countries has been one of the most positive trends of the 21st century. If it reverses, it implies more human suffering and geopolitical instability.
The big picture: In its Global Economic Prospects report, the development organization lays out a constellation of factors that are making the economic impact of the pandemic more lasting and severe in countries that were poorer to begin with.
- They are less likely to have effective mechanisms to obtain and rapidly distribute vaccines.
- They tend to have more limited access to debt markets and therefore less capacity for large-scale government borrowing to cushion the economic pain.
- Inflation tends to be more of a problem. For rich countries, higher food prices are an annoyance; for poor countries, they can cause mass starvation.
What they're saying: "I'm very worried about a permanent scar on development," World Bank President David Malpass told reporters Tuesday.
By the numbers: The bank projects overall global growth will slow from 5.5% in 2021 to 4.1% in 2022 and 3.2% in 2023.
- But whereas advanced economies are on track to return to their pre-pandemic economic trend, emerging market and developing economies are forecast to remain "markedly below" those levels.
Our thought bubble: Emerging economies face a paradox. Their citizens suffer from high inflation but they also stand to suffer from efforts by central banks to contain inflation by raising interest rates, which constrains credit worldwide.
- When the Fed raises interest rates to fight inflation, it tends to slow the economies of Asia, Latin America and beyond, where borrowing takes place in dollars.
The bottom line: The world faces a bumpy road in recovering from the pandemic recession, and it is bumpiest in the places with the fewest resources.
Editor's note: This story was originally published on Jan. 12.
