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.

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