Unprecedented government spending has helped ward off a grave economic depression in nations around the world, but the debt load governments like the U.S. are taking on to fund such stimulus measures could stall economic growth for years to come, the World Bank warned Tuesday, echoing concerns among experts worried inflation could trigger another recession.
Global economic output, as measured by worldwide GDP, is expected to increase 4% in 2021, the World Bank said in a Friday report, marking a nearly complete recovery after a 4.3% contraction in 2020 as the pandemic forced tens of millions of people into poverty and nearly stalled economic activity.
The World Bank predicts slowed growth of 3.8% in 2022 that could get worse if countries don’t reinvest assets to become less dependent on their surging debt loads.
Propping up the economy has come at a high cost: The World Bank notes that global debt levels surged to 99% of projected GDP last year for the first time on record (in the U.S. it’s skyrocketed up to 130%), largely as a result of heightened federal government spending on relief such as direct payments to individuals, unemployment insurance and regional aid.
Developed countries like the United States have headed up stimulus spending this year, though emerging and developing markets like Chad, Zambia and Ecuador are among the hardest-hit and most in need of help, the World Bank adds.
Such nations are already on the verge of defaulting on their debt, World Bank President David Malpass says, which could in turn spur humanitarian crises like those facing Venezuela, where food and energy shortages have plagued the debt-burdened nation for years.
The World Bank estimates about 30% of the world’s emerging and developing countries are thought to have lost at least 10 years of income gains per resident as a result of the pandemic, resulting in a “lost decade of growth” for these nations that could face other countries saddled with massive debt once interest rates inevitably rise. Source: Forbes