Economic recovery from Covid-19 is likely to be more “subdued” if governments do not act more decisively to stamp out the current upsurge in cases, the World Bank has warned.
In its latest Global Economic Prospects report, the bank said it expected the global economy to grow by 4 per cent this year assuming an initial Covid-19 vaccine rollout becomes widespread.
“A recovery, however, will likely be subdued unless policy-makers move decisively to tame the pandemic and implement investment-enhancing reforms,” it said.
With several advanced economies dealing with a fresh onslaught of cases, the Washington-based bank said the near-term outlook remained highly uncertain and that different growth outcomes were still possible.
If infections continued to rise and the rollout of a vaccine was delayed, this could limit the global expansion to 1.6 per cent in 2021, it said.
In contrast, in more successful pandemic control and a faster vaccination process, global growth could accelerate to nearly 5 per cent.
“Although the global economy is growing again after a 4.3 per cent 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,” it said.
It said the forecast collapse in global economic activity in 2020 is estimated to have been slightly less severe than previously projected. This was mainly due to shallower contractions in advanced economies and a more robust recovery in China.
Disruptions to activity in developing economies, however, have been more acute than expected.
The bank also noted that “a nascent rebound” in several advanced economies such as the US and euro zone stalled in the third quarter following a resurgence of infections, which pointed to a slow and challenging recovery.
It forecast the US economy would expand by 3.5 per cent in 2021, after an estimated 3.6 per cent contraction in 2020.
In the euro area output is anticipated to grow 3.6 per cent this year, following a more severe 7.4 per cent decline in 2020.
China’s economy is expected to expand by 7.9 per cent this year following 2 per cent growth last year.
The top near-term policy priorities are controlling the spread of Covid-19 and ensuring rapid and widespread vaccine deployment.
“While the global economy appears to have entered a subdued recovery, policy-makers 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,” said 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 World Bank acting vice-president for equitable growth and financial institutions, Ayhan Kose, also warned the pandemic had greatly exacerbated debt risks in emerging market and developing economies.