Updated Jan 17, 2022 - Economy & Business

World Bank: Gap between rich and poor countries is widening

Illustration: Sarah Grillo/Axios

For the last two decades, incomes in poorer countries were catching up to rich countries. The pandemic economy of the 2020s may reverse the trend, the World Bank warns in a new report.

Why it matters: Falling inequality between countries has been one of the most positive trends of the 21st century. If it reverses, it implies more human suffering and geopolitical instability.

The big picture: In its Global Economic Prospects report, the development organization lays out a constellation of factors that are making the economic impact of the pandemic more lasting and severe in countries that were poorer to begin with.

  • They are less likely to have effective mechanisms to obtain and rapidly distribute vaccines.
  • They tend to have more limited access to debt markets and therefore less capacity for large-scale government borrowing to cushion the economic pain.
  • Inflation tends to be more of a problem. For rich countries, higher food prices are an annoyance; for poor countries, they can cause mass starvation.

What they're saying: "I'm very worried about a permanent scar on development," World Bank President David Malpass told reporters Tuesday.

By the numbers: The bank projects overall global growth will slow from 5.5% in 2021 to 4.1% in 2022 and 3.2% in 2023.

  • But whereas advanced economies are on track to return to their pre-pandemic economic trend, emerging market and developing economies are forecast to remain "markedly below" those levels.

Our thought bubble: Emerging economies face a paradox. Their citizens suffer from high inflation but they also stand to suffer from efforts by central banks to contain inflation by raising interest rates, which constrains credit worldwide.

  • When the Fed raises interest rates to fight inflation, it tends to slow the economies of Asia, Latin America and beyond, where borrowing takes place in dollars.

The bottom line: The world faces a bumpy road in recovering from the pandemic recession, and it is bumpiest in the places with the fewest resources.

Editor's note: This story was originally published on Jan. 12.

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