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Restoring Dynamism to Development

The year ahead will be defined by three main challenges: rising macroeconomic risks, climate change, and the digital disruption. Multilateral institutions have an important role to play, but so does the private sector.

LONDON – As 2021 ends, the global economy is being forced to adapt to significantly changed conditions. It will not be a quick or painless process. The world is facing major disturbances caused by disrupted trade links, soaring energy prices, and labor-market mismatches. While many retailers have closed their brick-and-mortar stores, driving up unemployment, there have been significant shortages of information-technology engineers and truck drivers.

Many of these changes have been caused – or accelerated – by the COVID-19 crisis. But make no mistake: there is no going back to the pre-pandemic normal. The crisis will bring deep and long-lasting change. As we look to the year ahead, we must prepare to cope with three main challenges.

Rising Macroeconomic Risks

Among the biggest questions for the months ahead will be whether we are entering a new era of inflation, and how to manage high levels of public and private debt. Over the course of 2020, in many economies where the European Bank for Reconstruction and Development (EBRD) operates, public debt rose to levels last seen in the early 1990s. In some countries, it reached historic highs. A lack of fiscal and monetary space – together with barriers to vaccine access and negative spillovers from the advanced economies – could increase the divergence between emerging and developing countries.

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