The World Bank Group’s Global Economic Prospects report notes that although the global economy is expected to recover from the COVID-19-induced recession, progress will be slow and subdued.
Global growth is projected at 4% in 2021, but another spike in cases could reduce it to 1.6%.
Immediate policy priorities include supporting vulnerable groups, ensuring a prompt and widespread vaccination process to bring the pandemic under control, and addressing risks associated with debt accumulation.
A report by the World Bank Group finds that although the global economy is expected to recover in 2021 from the COVID-19-induced recession, progress will be slow and subdued. Policy challenges, region-specific risks, and structural weaknesses remain in place that require ambitious reforms in order to stave off “a decade of disappointments.”
Titled, ‘Global Economic Prospects, January 2021,’ the report emphasizes that an economic rebound will be fragile as it is subject to continued disruptions from the pandemic, such as delays in vaccine deployment or the accumulation of debt incurred by emerging economies. A World Bank news release highlights that the global economy contracted by 4.3% in 2020, representing the fourth most severe global recession in the past 150 years.
While global growth is projected at 4% in 2021, the report flags that the slower pace of vaccinations in developing countries relative to advanced economies represents “a substantial headwind to activity.” Another spike in cases could reduce global growth in 2021 to 1.6%, and overall global economic output is likely to remain more than 5% below its pre-pandemic trend, with below-trend expansion persisting through at least 2025. Accordingly, the report’s foreword underscores that “governments, households, and firms all need to embrace a changed economic landscape.”
Before COVID-19, economists were already identifying structural weaknesses in growth and downgrading economic expectations.
Regional deep dives include recent developments, outlooks, and risks for emerging markets and developing economies (EMDEs). The report highlights that the East Asia and Pacific region is projected to show strength in 2021, but attributes a significant portion of the recovery to a rebound in China. Economic activity is projected to be weakest in the Middle East and North Africa and Sub-Saharan Africa regions. All EMDE regions are vulnerable to renewed outbreaks and logistical impediments to the distribution of effective vaccines and to financial stress amid elevated debt levels, the report notes. Those that are reliant on oil exports and industrial commodities are particularly vulnerable due to price reductions from weak global demand. Accordingly, the report underscores the importance of prioritizing investments in digital technologies and green infrastructure to foster a more resilient and equitable development path.
The report emphasizes that before COVID-19, economists were already identifying structural weaknesses in growth and downgrading economic expectations. Bilateral tensions that contributed to trade uncertainty appear to have eased in recent years, but the pandemic-induced global trade collapse is expected to result in a further decline in the trade intensity of economic activity. Previous SDG Knowledge Hub coverage of the International Monetary Fund’s (IMF) World Economic Outlook, January 2019, highlights that global trade growth slowed to below 2017 averages.
Pointing to reform options for the near future, the report notes that spending on human capital, infrastructure investment, increasing the labor supply, and creating a growth-friendly environment can stave off “a decade of disappointments.” The report emphasizes that decisive policy actions can alter the trajectory and return society to better growth outcomes. Immediate priorities, the report recommends, include supporting vulnerable groups and ensuring a prompt and widespread vaccination process to bring the pandemic under control.
Risks that cloud the economic outlook extend beyond the pandemic itself, and relate to large output losses, increases in inequality, and rapidly rising debt. The report recommends that all private and official bilateral creditors participate in debt service relief efforts, noting that deep debt reduction for countries in debt distress is needed to increase the attractiveness for investment. [Publication: Global Economic Prospects, January 2021] [World Bank News Release]