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, according to the World Bank’s latest Global Economic Prospects report.

The report predicted that global growth will decelerate markedly from 5.5 percent in 2021 to 4.1 percent in 2022 and 3.2 percent 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, the World Bank added.

In addition, a notable deceleration in major economies—including the United States and China—will weigh on external demand in emerging and developing economies.

The world 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,” said World Bank Group President David Malpass.

“Putting more countries on a favorable growth path requires concerted international action and a comprehensive set of national policy responses.” he added.

Growth in advanced economies is expected to decline from 5 percent in 2021 to 3.8 percent in 2022 and 2.3 percent 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 percent in 2021 to 4.6 percent in 2022 and 4.4 percent in 2023.

India's Growth Prospects

According to the report, India’s economy is expected to expand by 8.3 percent in fiscal year 2021/22 (ending March 2022), unchanged from last June’s forecast as the recovery is yet to become broad-based. The economy should benefit from the resumption of contact-intensive services, and ongoing but narrowing monetary and fiscal policy support.

In FY2022/23 and FY2023/24 growth has been upgraded, to 8.7 and 6.8 percent respectively, to reflect an improving investment outlook with private investment, particularly manufacturing, benefiting from the Production-Linked Incentive (PLI) Scheme, and increases in infrastructure investment.

The growth outlook will also be supported by ongoing structural reforms, a better than-expected financial sector recovery, and measures to resolve financial sector challenges despite ongoing risks.