World Bank says major economies lead post-COVID-19 recovery, but outlook below pre-pandemic levels

By Aaron Humes: In its latest report, the World Bank expects greater than 5 percent economic growth worldwide in 2021, led mainly by major economies, but developing and emerging market economices continue to struggle with the COVID-19 pandemic and its aftermath. 

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.  

The United States is set for about 6.8 percent growth this year; China 8.5 percent, and developing countries other than China 4.4 percent. Recovery is being held back, the Bank said, by a resurgence of COVID-19 cases and lagging vaccination progress, as well as the withdrawal of policy support in some instances.

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.  

World Bank President David Malpass called for globally coordinated efforts to accelerate both vaccine distribution and debt relief for low-income countries and efforts by policy makers to address lasting effects of the pandemic and take steps to spur green, resilient, and inclusive growth while safeguarding macroeconomic stability.

The Bank’s report also 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 

Concerning inflation, 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.  

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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