Output to remain below pre-COVID trends despite robust rebound by US and China
WASHINGTON, June 8, 2021 — The global economy is expected to expand 5.6% in 2021, the fastest post-recession pace in 80 years, largely on strong rebounds from a few major economies. However, many emerging market and developing economies continue to struggle with the COVID-19 pandemic and its aftermath, the World Bank says in its June 2021 Global Economic Prospects.
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.
Download Global Economic Prospects here.
Regional Outlooks:
East Asia and Pacific: Growth in the region is projected to accelerate by 7.7% in 2021 and 5.3% in 2022. For more, see regional overview.
Europe and Central Asia: The regional economy is forecast to grow by 3.9% this year and 3.9% next year. For more, see regional overview.
Latin America and the Caribbean: Regional economic activity is expected to grow by 5.2% in 2021 and 2.9%. For more, see regional overview.
Middle East and North Africa: Economic activity in the Middle East and North Africa is forecast to advance by 2.4% this year and 3.5% next year. For more, see regional overview.
South Asia: Economic activity in the region is projected to expand by 6.8% in 2021 and 6.8% in 2022. For more, see regional overview.
Sub-Saharan Africa: Economic activity in the region is on course to rise by 2.8% in 2021 and 3.3% in 2022. For more, see regional overview.
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Now, let's delve into the key concepts mentioned in the article:
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Global Economic Prospects (June 2021): The World Bank's June 2021 Global Economic Prospects report provides a comprehensive analysis of the global economy. It predicts a significant expansion of 5.6% in 2021, marking the fastest post-recession growth in 80 years. However, despite robust rebounds in major economies, the global output is expected to remain around 2% below pre-pandemic projections by the end of the year.
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Emerging Market and Developing Economies: These economies are facing challenges in recovering from the COVID-19 pandemic. The article highlights that per capita income losses in about two-thirds of these economies will not be reversed by 2022. Many of them are grappling with a resurgence of COVID-19 cases, lagging vaccination progress, and the withdrawal of policy support in some instances.
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Low-Income Economies: Low-income economies, particularly those with slow vaccination rates, are experiencing the slowest growth in the past two decades. Despite an expected expansion of 2.9% in 2021 and a pickup to 4.7% in 2022, their output level in 2022 is projected to be 4.9% lower than pre-pandemic projections. The pandemic has reversed poverty reduction gains in these economies.
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Major Economies: The United States is projected to experience substantial growth of 6.8% in 2021, supported by fiscal measures and easing pandemic restrictions. China is expected to rebound to 8.5% this year, reflecting pent-up demand. However, growth in other advanced economies is less pronounced.
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Trade Costs and Global Value Chains: The report suggests that lowering trade costs, including cumbersome logistics and border procedures, can bolster the recovery of emerging market and developing economies. Despite a 15-year decline, trade costs in these countries remain almost one-half higher than in advanced economies. Efforts to streamline trade processes, improve transport infrastructure, and encourage competition could lead to considerable cost savings.
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Global Inflation: The article addresses the rebound in global inflation accompanying economic recovery. While global inflation is expected to rise over the year, it is likely to remain within target ranges in most inflation-targeting countries. However, emerging market and developing economies may face challenges in policy choices, especially if inflation pressures in advanced economies lead to financial market stress.
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Regional Outlooks: The report provides regional outlooks for different parts of the world, including East Asia and Pacific, Europe and Central Asia, Latin America and the Caribbean, Middle East and North Africa, South Asia, and Sub-Saharan Africa. Growth projections vary across regions, reflecting different economic dynamics and challenges.
In conclusion, the World Bank's Global Economic Prospects report emphasizes the need for globally coordinated efforts to address the lingering effects of the pandemic, accelerate vaccine distribution, and promote inclusive, green, and resilient growth. Policymakers are urged to focus on lowering trade costs, managing inflation, and implementing targeted policies to support the recovery of economies, especially in low-income and developing regions.
