WASHINGTON: The global economy is expected to expand 4 per cent this year, assuming an initial Covid-19 vaccine rollout becomes widespread throughout the year, the World Bank says in its January 2021 Global Economic Prospects.
A recovery, however, will likely be subdued, unless policy makers move decisively to tame the pandemic and implement investment-enhancing reforms.
Although the global economy is growing again after a 4.3pc contraction in 2020, the pandemic has caused a heavy toll of deaths and illness, plunged millions into poverty, and may depress economic activity and incomes for a prolonged period. Top near-term policy priorities are controlling the spread of Covid-19 and ensuring rapid and widespread vaccine deployment. To support economic recovery, authorities also need to facilitate a re-investment cycle aimed at sustainable growth that is less dependent on government debt.
“While the global economy appears to have entered a subdued recovery, policymakers face formidable challenges – in public health, debt management, budget policies, central banking and structural reforms – as they try to ensure that this still fragile global recovery gains traction and sets a foundation for robust growth,” said World Bank Group president David Malpass.
“To overcome the impacts of the pandemic and counter the investment headwind, there needs to be a major push to improve business environments, increase labour and product market flexibility, and strengthen transparency and governance.”
The collapse in global economic activity last year is estimated to have been slightly less severe than previously projected, mainly due to shallower contractions in advanced economies and a more robust recovery in China. In contrast, disruptions to activity in the majority of other emerging market and developing economies were more acute than expected.
“Financial fragilities in many of these countries, as the growth shock impacts vulnerable household and business balance sheets, will also need to be addressed,” vice president and World Bank Group chief economist Carmen Reinhart said.
The near-term outlook remains highly uncertain, and different growth outcomes are still possible, as a section of the report details. A downside scenario in which infections continue to rise and the rollout of a vaccine is delayed could limit the global expansion to 1.6pc this year. Meanwhile, in an upside scenario with successful pandemic control and a faster vaccination process, global growth could accelerate to nearly 5pc.
In advanced economies, a nascent rebound stalled in the third quarter following a resurgence of infections, pointing to a slow and challenging recovery. US GDP is forecast to expand 3.5pc this year, after an estimated 3.6pc contraction last year. In the euro area, output is anticipated to grow 3.6pc this year, following a 7.4pc decline last year. Activity in Japan, which shrank by 5.3pc in the year just ended, is forecast to grow by 2.5pc this year.
Aggregate GDP in emerging market and developing economies, including China, is expected to grow 5pc in 2021, after a contraction of 2.6pc in 2020. China’s economy is expected to expand by 7.9pc this year following 2pc growth last year. Excluding China, emerging market and developing economies are forecast to expand 3.4pc in 2021 after a contraction of 5pc in 2020. Among low-income economies, activity is projected to increase 3.3pc in 2021, after a contraction of 0.9pc in 2020.