Global economic growth can benefit from sustained acceleration in technological change brought on by the pandemic as it is expected to decelerate markedly this year due to the effects of the Omicron variant, the World Bank said.
In its latest Global Economic Prospects report, the bank said economic growth is forecast to slow to 4.1 percent in 2022 after rebounding to an estimated 5.5 percent last year, also amid diminished fiscal support and lingering supply bottlenecks.
The report said there is the possibility that global growth could be stronger than expected given the additional fiscal support to renew domestic infrastructure in efficient ways.
Citing an earlier report, the bank said that if supplementary large scale fiscal support is enacted in the United States, many emerging market and developing economies (EMDEs) would stand to benefit from positive spillovers through trade, financial, and commodity price channels.
“Global growth could also benefit from a prolonged period of accelerated technological change, which may, over time, become a positive side-effect of the pandemic,” it said. “Many corporations were forced to innovate in order to survive the initial pandemic shock, rapidly adopting new digital technologies and shifting some of their business activities online.”
Citing other reports, the bank said that if sustained, the acceleration of digitalization brought on by the pandemic could contribute to faster productivity growth.
The installation of new productive capital such as telecommunications equipment could contribute to a rise in total factor productivity, while labor-saving digital technologies could spur the reallocation of labor toward higher-growth sectors provided it is accompanied by proper labor and social protection policies, it said.
“…Rapid adoption of digital financial technologies could reduce financing costs and expand access to credit among small- and medium-sized firms,” it said, adding that realizing the benefits to global growth from accelerated technological adoption depends crucially on achieving a faster pace of technological diffusion across firms and countries.
Meanwhile, global trade is also expected to slow to 5.8 percent in this year and to 4.7 percent in 2023 after reaching 9.5 percent in 2021, as demand moderates.
“International travel is likely to remain subdued in the near term but gradually recover over the forecast horizon, supported by improvements in international mobility as vaccination proceeds,” the bank said.
The report added downside risks to the global trade outlook include the worsening supply bottlenecks due to the Omicron-driven pandemic surge in the near term, and rising protectionism in the longer-term.