Global economic outlook dims on virus’s surge ahead of vaccines

This year’s global economic rebound from the deepest recession since World War II will be slightly slower than previously expected amid a resurgence in virus cases across advanced economies, the World Bank said.

Gross domestic product will expand 4% in 2021, less than the 4.2% forecast in June, followed by 3.8% growth in 2022, the Washington-based lender said Tuesday in its semi-annual Global Economic Prospects report. The U.S. and euro area forecasts were lowered while the China growth projection rose by 1 percentage point to 7.9%.

The development lender cited an “exceptional level of uncertainty” about the near-term outlook for the best growth since 2010 after an estimated 4.3% contraction last year. The pandemic also may reduce potential global growth over a decade unless governments improve business climates, education and productivity.

“Policy makers 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,” World Bank President David Malpass said in his introduction to the report.

While the virus plunged millions into poverty and reversed at least a decade of income gains in about a quarter of emerging and developing economies, the lender said vaccinations should lift confidence, consumption, and trade this year and next.

But plenty of risks to the outlook remain, including new outbreaks, vaccination delays, financial stress amid high debt, and unemployment and business shutdowns becoming permanent, according to the report. Persistent economic weakness could trigger bankruptcies and potentially fuel financial crises.

The bank said the global community must collaborate to ease debt burdens after government borrowing in emerging and developing economies likely surged by 9 percentage points of GDP in 2020, the most since a series of late 1980s debt crises.

While emerging and developing economies are forecast to grow 5% this year and 4.2% next year, such improvement largely reflects the recovery in China, where the virus has been significantly contained. Excluding the world’s second-largest economy, those countries are projected to grow just 3.4% and 3.6% this year and next as the pandemic continues to weigh on consumption and investment.

The report includes two adverse scenarios; one where new infections remain elevated in much of the world, and a second where vaccination delays re-ignite financial stress that spurs widespread corporate and sovereign defaults. Such outcomes could mean just 1.6% growth this year or even another global contraction.

The International Monetary Fund in October slightly lowered its 2021 growth forecast to 5.2%, warning that despite massive stimulus from central banks and governments the world still faces an uneven recovery until the virus is tamed.

The IMF typically issues a late-January update to its projections. The methodologies are different because IMF aggregate forecasts are based on purchasing-power parity, which gives more weight to developing economies, while the World Bank uses market exchange rates.

Other highlights from the World Bank report include

  1. 2021 U.S. growth forecast cut to 3.5% from 4% in June on subdued demand seen in the early part of the year amid new restrictions and a broad virus resurgence

  2. Euro area projection reduced to 3.6% from 4.5% following stringent lockdowns, with sectors like tourism likely to remain depressed

  3. Latin America estimate raised to 3.7% from 2.8% on prospects for restrictions easing, faster vaccinations in the second half, and rising oil and metal prices

  4. Global trade volume growth forecast cut slightly to 5% in 2021 following a 9.5% contraction last year

Global economic outlook dims on virus’s surge ahead of vaccines Global economic outlook dims on virus’s surge ahead of vaccines Reviewed by TechCO on 1/06/2021 Rating: 5

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