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The Wall Street Publication > Blog > Business > Omicron, Supply-Chain Issues to Slow Growth, World Bank Says
Business

Omicron, Supply-Chain Issues to Slow Growth, World Bank Says

Editorial Board Published January 11, 2022
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Omicron, Supply-Chain Issues to Slow Growth, World Bank Says
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WASHINGTON—The global economy is poised to slow down in 2022, the World Bank forecast Tuesday, citing the effects of the Omicron variant, supply-chain disruptions, labor shortages and the winding down of government economic support.

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Newsletter Sign-upReal Time EconomicsJapan is among countries expected to strengthen in 2022, according to the World Bank. A Tokyo shopping street.The Omicron Variant

The headwinds are expected to slow economic growth to 4.1% in 2022, down from 5.5% last year, which was the strongest postrecession pace in 80 years, according to the World Bank’s semiannual Global Economic Prospects report.

The report projects growth to slow further, to 3.2%, in 2023.


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“At a time when governments in many developing economies lack the policy space to support activity if needed, new Covid-19 outbreaks, persistent supply-chain bottlenecks and inflationary pressures, and elevated financial vulnerabilities in large swaths of the world could increase the risk of a hard landing,” the World Bank said.

The Omicron variant, first detected in South Africa in November, might cause less severe disease than earlier strands of the virus, but its rapid spread could overwhelm exhausted health systems and prompt some governments to renew lockdowns, hindering growth, the forecast said.

Scientists are using automation, real-time analysis and pooling data from around the world to rapidly identify and understand new coronavirus variants before the next one spreads widely. Photo Illustration: Sharon Shi

In the U.S., more than 750,000 daily cases were reported on average in each of the seven days to Monday, close to triple the previous record set last winter, according to data collected by Johns Hopkins University. France, Italy, the Netherlands and Canada are other countries currently reporting record case numbers, according to Our World in Data from the University of Oxford.

The Washington-based World Bank, the world’s largest development bank which is focused on eliminating global poverty, also said the global economy remains at risk to new variants of the virus because vaccine coverage is far lower in emerging-market and low-income countries than in advanced economies.

Even so, the slowdown is likely to affect most major economies. U.S. growth is expected to slow to 3.7% from 5.6%, according to the forecast, which projects China to slow to 5.1% from 8%.

Some economies may buck the trend, however, and grow more strongly in 2022, especially those that remained significantly weakened during the pandemic, such as a number of Southeast and East Asian economies.

Japan, Indonesia, Thailand, Malaysia and Vietnam are among countries expected to strengthen in 2022.

The global economy did better in 2021 than the World Bank had forecast a year ago. A year ago, the World Bank had expected 4% growth for 2021, well shy of the 5.5% it now estimates.

Japan is among countries expected to strengthen in 2022, according to the World Bank. A Tokyo shopping street.

Photo: Carl Court/Getty Images

But even as much of the world snapped back from the pandemic more quickly than expected, a new array of challenges emerged, including a malfunctioning supply chain and surging inflation. Owing in part to virus-related factory shutdowns in many countries, international trade and industrial production were held back by severe disruptions in global supply chains.

The World Bank provided some estimates of the impact of the disruptions, saying that they have suppressed international trade by 8.4% and industrial production by 6.9%, compared with how much activity would have occurred in a normally functioning international system.

As of mid-2021, global trade was 5% higher than it was in December 2019, the World Bank said. But without the disruptions, trade would have grown by 13.4%, potentially allowing the world to enter 2022 on much stronger footing.

The World Bank said in its assessment the disruptions “seem to have originated mostly from factors that are likely to be temporary, including pandemic-related factory and port shutdowns, weather-induced logistics bottlenecks, and an acute shortage of semiconductors and shipping containers.”

The World Bank said it estimated that supply bottlenecks and labor shortages gradually would dissipate throughout 2022 and that in the second half of the year, inflation and commodity prices also gradually would decline. The underlying demand for durable goods, one force placing so much strain on supply chains, will likely moderate along with the slowing global economy.

The Omicron Variant

Write to Josh Zumbrun at [email protected]

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