NDO - The new wave of the COVID-19 pandemic has slowed the growth of the world economy, but forecasts still show positive signs. According to the annual report of the Centre for Economic and Business Research (CEBR), the world economic output will hit 100 trillion USD for the first time in 2022, while global GDP will also be higher than pre-pandemic level.
This is a positive signal for global economic growth, because CEBR previously forecast that it would take until 2024 for world economic output to reach the 100 trillion USD threshold. The higher-than-expected increase in global GDP was attributed to economies' better adaptation to the pandemic, making the re-imposed restriction measures less severe.
According to a CEBR report, China is on track to take the US's place, becoming the world's largest economy by 2030. India will overtake France in 2022, while the UK will regain its position as the 6th largest economy by 2023. The report also forecasts that Germany may overtake Japan in industrial output by 2033, while Russia breaks into the top 10 by 2036.
In the colourful picture of the global economy, the US economy is heavily affected by the raging Omicron variant. The GDP growth momentum of the world's No. 1 economy slowed down significantly from 6.7% in the second quarter of 2021, due to the increasing number of new COVID-19 cases and the reduction in the government's financial support, while consumers tightened their spending. The government's imposition of additional restrictive measures have also affected business operations.
The US Department of Commerce released adjusted data showing that the country's economic growth in the third quarter of 2021, was higher than forecast. Real GDP has been revised as higher, but remains dismal, according to Grant Thornton’s chief economist Diane Swonk. The wave of infection with the Omicron variant can create a strong impact by the end of the year as many businesses have to close. The size of the US economy is likely to shrink in early 2022, said Moody's chief economist.
The economic outlook of the euro area (Eurozone) is also forecast to slow down in line with rising inflation. According to experts, the economic recovery of the Eurozone is at risk of weakening if inflation continues to rise, causing consumers’ income to fall and stimulus measures to end sooner than planned.
A finance professor at Copenhagen Business School said that inflation will “eat up” wages, causing consumption demand to decrease, while the European Central Bank (ECB) may have to raise interest rates to cope with risks from inflation.
An economist at HSBC also said that higher energy prices will also reduce household purchasing power, causing GDP to shrink by 0.5 percentage points over the next few quarters. If inflation continues at high levels beyond 2022, inflation will force the ECB to adjust policies, increasing the burden on the economy and posing risks to financial stability.
High inflation poses greater risks than the pandemic. According to most economists, the euro area will grow at 4% next year, slightly below the ECB's forecast of 4.2%. The biggest challenge for the European Union (EU) is to find a balance of macro policies, both fiscal and monetary policies, so that the region's economy can continue to recover while controlling inflation.
The Asian Development Bank (ADB) has also lowered its economic growth forecast for the continent due to the emergence of the new Omicron variant and an increase in the number of new infections globally. ADB forecasts that Asia's GDP growth may reach 7% in 2021, down 0.1% from the forecast made in September.
This growth shows a significant economic recovery compared to the decline of 0.1% in 2020. ADB also lowered its GDP growth forecast for Asia in 2022, from 5.4% to 5.3%. China, the region's largest economy, is forecast to grow slower, at 8% in 2021 and 5.3% in 2022 while India's economic growth forecast for the fiscal year (starting from April 1, 2021) will be reduced to 9.7%.
ADB also downgraded ASEAN’s economic outlook to 3% in 2021. ADB's downgrade of Asia's growth forecast is due to the assessment that a new wave of COVID-19 infections, which could reverse the reopening plan in some countries and travel restrictions will also hold back growth in tourism-dependent economies. Meanwhile, Japan raised its growth forecast for fiscal year 2022 to 3.2%, up sharply from the previous forecast of 2.2%.
The global economic picture is still bleak and has many mixed colours due to the impact of the pandemic. However, signs of recovery show that economies have become more adaptive to pandemic control measures and could boost growth in the “new normal”.
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