Published Wednesday, January 6, 2021
Global economy may expand 4%
in 2021, study says
By the A.M. Costa Rica wire services
The global economy is expected to expand 4% in 2021, assuming an initial covid-19 vaccine rollout becomes widespread throughout the year, announced the on Tuesday.
According to the firm, in its January 2021 Global Economic Prospects. A recovery, however, will likely be subdued, unless policymakers move decisively to tame the pandemic and implement investment-enhancing reforms.
Although the global economy is growing again after a 4.3% 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, the World Bank said in its statement.
“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,” David Malpass, World Bank Group President said. “To overcome the impacts of the pandemic and counter the investment headwind, there needs to be a major push to improve business environments, increase labor and product market flexibility, and strengthen transparency and governance.”
The collapse in global economic activity in 2020 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 markets 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,” Carmen Reinhart, Vice President and World Bank Group Chief Economist 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 1.6% in 2021.
Meanwhile, in an upside scenario with successful pandemic control and a faster vaccination process, global growth could accelerate to nearly 5%.
In advanced economies, a nascent rebound stalled in the third quarter following a resurgence of infections, pointing to a slow and challenging recovery.
For example, the U.S. GDP is forecast to expand by 3.5% in 2021, after an estimated 3.6% contraction in 2020, and in the euro area, the output is anticipated to grow 3.6% this year, following a 7.4% decline in 2020.
In Latin America and the Caribbean, the bank expects economic activity to grow by 3.7% in 2021.
Analytical sections of the latest Global Economic Prospects report examining how the pandemic has amplified risks around debt accumulation; how it could hold back growth over the long term absent concerted reform efforts; and what risks are associated with the use of asset purchase programs as a monetary policy tool in emerging market and developing economies.
As severe crises did in the past, the pandemic is expected to leave long-lasting adverse effects on global activity. It is likely to worsen the slowdown in global growth projected over the next decade due to underinvestment, underemployment, and labor force declines in many advanced economies. If history is any guide, the global economy is heading for a decade of growth disappointments unless policymakers put in place comprehensive reforms to improve the fundamental drivers of equitable and sustainable economic growth, the World Bank said.
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