The global economy is expected to expand 4% in 2021, assuming an initial Covid-19 vaccine rollout becomes widespread throughout the year.
A recovery is however likely to be subdued unless policymakers move decisively to tame the pandemic and implement investment-enhancing reforms, the World Bank says in its January 2021 Global Economic Prospects.
“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 reinvestment cycle aimed at sustainable growth that is less dependent on government debt,” the report stresses.
“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,” says 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 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 market and developing economies were more acute than expected, the report explains.
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%.
Aggregate GDP in emerging market and developing economies, including China, is expected to grow 5% in 2021, after a contraction of 2.6% in 2020. China’s economy is expected to expand by 7.9% this year following 2% growth last year. Excluding China, emerging market and developing economies are forecast to expand 3.4% in 2021 after a contraction of 5% in 2020. Among low-income economies, activity is projected to increase 3.3% in 2021, after a contraction of 0.9% in 2020.
As severe crises did in the past, the pandemic is expected to leave long-lasting adverse effects on global activity. “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.”
From a regional point of view, economic activity in sub-Saharan Africa is on course to rise by 2.7%, according to the report.