The Great Divergence: A Fork in the Road for the Global Economy
As G20 finance ministers and central bank governors meet virtually this week, the world continues to climb back from the worst recession in peacetime since the Great Depression.
The IMF recently projected global GDP growth at 5.5 per cent this year and 4.2 per cent in 2022. But it is going to be a long and uncertain ascent. Most of the world is facing a slow rollout of vaccines even as new virus mutations are spreading—and the prospects for recovery are diverging dangerously across countries and regions.
Indeed, the global economy is at a fork in the road. The question is: will policymakers take action to prevent this Great Divergence?
As our note to the G20 meeting points out, there is a major risk that as advanced economies and a few emerging markets recover faster, most developing countries will languish for years to come. This would not only worsen the human tragedy of the pandemic, but also the economic suffering of the most vulnerable.
We estimate that, by the end of 2022, cumulative per capita income will be 13 percent below pre-crisis projections in advanced economies—compared with 18 percent for low-income countries and 22 percent for emerging and developing countries excluding China. This projected hit to per capita income will increase by millions the number of extremely poor people in the developing world.
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