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Output to remain below pre-COVID trends despite robust rebound by US and China
Despite the recovery, global output will be about 2% below
pre-pandemic projections by the end of this year. Per capita income losses will
not be unwound by 2022 for about two-thirds of emerging market and developing
economies. Among low-income economies, where vaccination has lagged, the
effects of the pandemic have reversed poverty reduction gains and aggravated
insecurity and other long-standing challenges.
“While there are welcome signs of global recovery,
the pandemic continues to inflict poverty and inequality on people in
developing countries around the world,” said World Bank Group President David Malpass. “Globally coordinated efforts are essential
to accelerate vaccine distribution and debt relief, particularly for low-income
countries. As the health crisis eases, policymakers will need to address the
pandemic’s lasting effects and take steps to spur green, resilient, and
inclusive growth while safeguarding macroeconomic stability.”
Among
major economies, U.S. growth is projected to reach 6.8% this year, reflecting
large-scale fiscal support and the easing of pandemic restrictions. Growth in
other advanced economies is also firming, but to a lesser extent. Among
emerging markets and developing economies, China is anticipated to rebound to
8.5% this year, reflecting the release of pent-up demand.
Emerging
market and developing economies as a group are forecast to expand 6% this year,
supported by higher demand and elevated commodity prices. However, the recovery
in many countries is being held back by a resurgence of COVID-19 cases and
lagging vaccination progress, as well as the withdrawal of policy support in
some instances. Excluding China, the rebound in this group of countries is
anticipated to be a more modest 4.4%. The recovery among emerging market and
developing economies is forecast to moderate to 4.7% in 2022. Even so, gains in
this group of economies are not sufficient to recoup losses experienced during
the 2020 recession, and output in 2022 is expected to be 4.1% below
pre-pandemic projections.
Per
capita income in many emerging market and developing economies is also expected
to remain below pre-pandemic levels, and losses are anticipated to worsen
deprivations associated with health, education and living standards. Major
drivers of growth had been expected to lose momentum even before the COVID-19
crisis, and the trend is likely to be amplified by the scarring effects of the
pandemic.
Growth
in low-income economies this year is anticipated to be the slowest in the past
20 years other than 2020, partly reflecting the very slow pace of vaccination.
Low-income economies are forecast to expand by 2.9% in 2021 before picking up
to 4.7% in 2022. The group’s output level in 2022 is projected to be 4.9% lower
than pre-pandemic projections.
An
analytical section of the Global
Economic Prospects report examines how lowering trade costs such as
cumbersome logistics and border procedures could help bolster the recovery
among emerging market and developing economies by facilitating trade. Despite a
decline over the past 15 years, trade costs remain almost one-half higher in
these countries than in advanced economies, in large part due to higher
shipping and logistics costs. Efforts to streamline trade processes and
clearance requirements, to enable better transport infrastructure and
governance, encourage greater information sharing, and strengthen competition
in domestic logistics, retail, and wholesale trade could yield considerable
cost savings.
“Linkages through trade and global value chains
have been a vital engine of economic advancement for developing economies and
lifted many people out of poverty. However, at current trends, global trade
growth is set to slow down over the next decade,” World
Bank Group Vice President for Equitable Growth and Financial Institutions
Indermit Gill said. “As
developing economies recover from the COVID-19 pandemic, cutting trade costs
can create an environment conducive to re-engaging in global supply chains and
reigniting trade growth.”
Another
section of the report provides an analysis of the rebound in global inflation
that has accompanied recovering economic activity. The 2020 global recession
brought about the smallest inflation decline and the fastest subsequent
inflation upturn of the last five global recessions. While global inflation is
likely to continue to rise over the remainder of this year, inflation is
expected to remain within target ranges in most inflation-targeting countries.
In those emerging market and developing economies where inflation rises above
target, a monetary policy response may not be warranted provided it is
temporary and inflation expectations remain well-anchored.
“Higher global inflation may complicate the policy
choices of emerging market and developing economies in coming months as some of
these economies still rely on expansionary support measures to ensure a durable
recovery,” World
Bank Prospects Group Director Ayhan Kose said. “Unless risks from record-high debt are
addressed, these economies remain vulnerable to financial market stress should
investor risk sentiment deteriorate as a result of inflation pressures in
advanced economies.”
Rising
food prices and accelerating aggregate inflation may also compound challenges
associated with food insecurity in low-income countries. Policymakers in these
countries should ensure that rising inflation rates do not lead to a
de-anchoring of inflation expectations and resist subsidies or price controls
to avoid putting upward pressure on global food prices. Instead, policies
focusing on scaling up social safety net programs, improving logistics and
climate resilience of local food supply would be more helpful.
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