Increased economic uncertainty is also stemming from worries about the relentless and ongoing Covid-19 pandemic and its multiple variants, with factors such as inflation, bad debts, and inequality adding to it. The wide differences in policies of the two largest economies in the world, namely, the US and China, could also aggravate or forestall the efforts towards global economic recovery.
Low growth target
According to a forecast published in June 2021, the world GDP was estimated to grow by 5.5% in 2021, then gradually decrease to 4.1% by 2022 and 3.2% by 2023. With the spread of the Omicron variant and high inflation in many economies, the GDP growth in 2021 and 2022 was revised down by 0.2%, at only 5.3% in 2021 and 3.9% in 2022. On an average, advanced economies, including the US, Japan, and the European Union countries experienced a 0.4% contraction in 2021, and a 0.2% decline in 2022, compared with forecasts six months ago. The US saw a decrease of 1.2% in 2021 and will see a 0.5% decline in 2022.
In emerging and developing economies, the overall decline in 2022 compared with the previous forecast is 0.1%. The most prominent forecast is the slowdown of China, Brazil, and Russia this year. The East Asia and Pacific region, including Vietnam, as per the forecast update, suffered a decline of 0.6% in 2021 and will see a further fall by 0.2% in 2022, with the largest reduction forecast set to be in Thailand.
Real GDP growth (%) of countries and world
Change from 6-2021 report (% points)
| 2021e | 2022f | 2023f | 2021e | 2022f | 2023f | |
| Mỹ | 5.6 | 3.7 | 2.6 | -1.2 | -0.5 | 0.3 |
| China | 8.0 | 5.1 | 5.3 | -0.5 | -0.3 | 0.0 |
| Euro Area | 5.2 | 4.2 | 2.1 | 1.0 | -0.2 | -0.3 |
| Russia | 4.3 | 2.4 | 1.8 | 1.1 | -0.8 | -0.5 |
| Brazil | 4.9 | 1.4 | 2.7 | 0.4 | -1.1 | 0.4 |
| India | 8.3 | 8.7 | 6.8 | 0.0 | 1.2 | 0.3 |
| Vietnam | 2.6 | 5.5 | 6.5 | -4.0 | -1.0 | 0.0 |
| World | 5.5 | 4.1 | 3.2 | -0.2 | -0.2 | 0.1 |
Source: Global Economic Prospects report, World Bank 1-2022
Concerns for EMDE
| According to a report by the World Bank, GDP growth in 2022 and 2023 in Emerging Markets and Developing Economies (EMDE) will be at the average level of ten years before the outbreak of the Covid-19 pandemic. However, this growth rate is not enough to offset the dangerous path the pandemic can suddenly take. It is being believed now that the East Asia and Pacific region will be short of 4%, and South Asia will be short of 8% in 2023. A new variant of Covid-19 such as Omicron, which is extremely fast spreading, can challenge all social distancing measures. In addition, vaccine shortage is also a serious challenge for EMDE countries, because of inequality. |
Risks related to financial pressure also increased in most countries with the threat of inflation, and tightening of monetary policies amid rising debts. In addition, faster than expected policy changes in advanced economies could have a major impact on capital flow or reduction in debt financing programs. Many EMDE countries are even under pressure from high debt ratio of businesses and individuals, with the bad debt situation now reaching alarming levels.
In the event that these disadvantages are occurring at the same time or in conjunction with each other, it is possible this will further aggravate the problem of supply chain disruptions, increase inflation and tighten monetary policies again. In addition, climate change risks are a major threat for EMDE countries, simultaneous to several other difficulties piling up.
Conflicting global policies
The recovery of the world economy is also heavily influenced by policies from the two largest economies, namely, the US and China, because each country is pursuing different goals at this time. The immediate priority for the US is inflation, according to the response to the Fed in the Senate on Tuesday, 11 January. Inflation in the US has exceeded the target rate, and according to the Fed, the US economy does not need much support anymore, while it is time to tighten monetary policy through raising interest rates and reducing bond purchase. As financial markets and international capital flow is very sensitive to the Fed interest rate adjustment, the Fed's rise is always the focus of attention.
As of now, China's big concern is slow growth. The policy to support China's economy is said to be more about increasing liquidity or injecting money, rather than reducing interest rate. However, many analysts believe that if the situation does not improve, the interest rate will be used as a tool more thoroughly. Specifically, on 15 December, the Central Bank of China (PBOC) reduced the reserve requirement ratio by 50 bps, along with many other policies such as increasing credit supply, and supporting more small and medium size enterprises.
Facing concerns that the US interest rate hike will be detrimental to interest rate cuts in China, a former PBOC adviser said that China is capable of maintaining its monetary policy, which means that if China wants to lower interest rates or ease them, China can absolutely do it. China is determined to maintain a minimum growth rate of 5% in 2022, and this will be a strong political determination because later this year there will be a Party Congress held in China.
The year 2022 has just begun, but there are already signs that the world economy this year will receive fast, flexible, and possibly unexpected policies from central banks and governments across the globe. EMDE economies are threatened by the risk of a hard landing, but this risk would be greatly reduced if major economies such as the US and China were more in agreement with each other. In 2022, more than ever, the world urgently needs to see global cooperation to resolve a multitude of conflicts and problems for the survival of all mankind.
