Bangladesh’s GDP is expected to reach 6.4 per cent in FY2021/22 ending June 2022, and 6.9 per cent in FY2022/23, due to growing services activity and firming exports of readymade garments.
The consumer inflation in major economies of the region has been above central banks’ targets since late 2019.
The World Bank report says the pandemic, and the emergence of the Omicron variant, could hinder economic activity by requiring additional mobility restrictions and undermining external demand.
It adds that risks to the outlook remain to the downside, while another risk stems from financing conditions.
Further upward price pressures may cause inflation expectations to become unanchored, worsening domestic financing conditions, eroding real incomes, and weakening the financial sector.
Climate risks are becoming more prevalent in South Asia as cyclones, floods, and droughts have become more frequent and as the costs of such events have increased.
The region is one of the most vulnerable to climate-induced increases in poverty, disease, child mortality and food prices.
The report states that the growth prospects have improved since June 2021, largely because of better prospects in Bangladesh, India, and Pakistan.
Regional growth is expected to accelerate to 7.6 per cent in 2022 as pandemic-related disruptions fade, before slowing to 6.0 per cent in 2023.
In most economies, monetary and fiscal policies are expected to remain broadly accommodative in 2022, but gradually shift to a focus on fiscal sustainability and anchoring inflation expectations.
Despite the upward revision to growth, output in 2023 is still projected to be almost 8 per cent lower than projected before the pandemic.
Additionally, the pace of per capita income catch-up with advanced economies is expected to slow over the forecast horizon.
In the sub-region excluding India, the report said, growth momentum will pick up over the forecast horizon and is expected to expand by 4.4 per cent in fiscal year 2021/22.
According to the World Bank press release, following a strong rebound in 2021, the global economy is entering a pronounced slowdown amid fresh threats from COVID-19 variants and a rise in inflation, debt, and income inequality that could endanger the recovery in emerging and developing economies.
Global growth is expected to decelerate markedly from 5.5 per cent in 2021 to 4.1 per cent in 2022 and 3.2 per cent in 2023 as pent-up demand dissipates and as fiscal and monetary support is unwound across the world.
The rapid spread of the Omicron variant indicates that the pandemic will likely continue to disrupt economic activity in the near term.
In addition, a notable deceleration in major economies—including the United States and China—will weigh on external demand in emerging and developing economies.
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.
World Bank group president David Malpass said the global economy is simultaneously facing Covid-19, inflation, and policy uncertainty, with government spending and monetary policies in uncharted territory.
“Rising inequality and security challenges are particularly harmful for developing countries. Putting more countries on a favourable growth path requires concerted international action and a comprehensive set of national policy responses.”
The slowdown will coincide with a widening divergence in growth rates between advanced economies and emerging and developing economies.
Growth in advanced economies is expected to decline from 5 per cent in 2021 to 3.8 per cent in 2022 and 2.3 per cent in 2023—a pace that, while moderating, will be sufficient to restore output and investment to their pre-pandemic trend in these economies.
In emerging and developing economies, however, growth is expected to drop from 6.3 per cent in 2021 to 4.6 per cent in 2022 and 4.4 per cent in 2023. By 2023, all advanced economies will have achieved a full output recovery; yet output in emerging and developing economies will remain 4 per cent below its pre-pandemic trend.
For many vulnerable economies, the setback is even larger, output of fragile and conflict-affected economies will be 7.5 per cent below its pre-pandemic trend, and output of small island states will be 8.5 per cent below.
Meanwhile, rising inflation—which hits low-income workers particularly hard—is constraining monetary policy.
Globally and in advanced economies, inflation is running at the highest rates since 2008.
In emerging markets and developing economies, it has reached its highest rate since 2011.
Many emerging and developing economies are withdrawing policy support to contain inflationary pressures—well before the recovery.