The World Bank on Tuesday released its Global Economic Prospects report, predicting that the global economy will grow by 4 percent in 2021 after shrinking by 4.3 percent in 2020, with China’s economy growing by 7.9 percent.
(Credit: World Bank)
To put this into context, the World Bank expects China’s economy to grow by a whopping 7.9% in 2021, after growing 2% in 2020. Excluding China, emerging market and developing economies will grow 3.4 percent in 2021 after shrinking 5 percent in 2020.
The US, Japan and Europe will also see positive growth, but will struggle to return to pre-epidemic levels this year. The World Bank expects the U.S. economy to grow 3.5% in 2021 after shrinking 3.6% in 2020; The euro area will grow by 3.6% this year, after shrinking by 7.4% in 2020; Japan will grow 2.5 percent this year after falling 5.3 percent in 2020.
In its semi-annual forecast, the World Bank said that while the economic contraction caused by the outbreak was less severe than previously forecast, the recovery would be slower and there were still significant downside risks. The epidemic remains the biggest risk to the global economy this year, with the World Bank warning that rising infection rates and delays in vaccine distribution could keep the global economy from growing by just 1.6 per cent this year.
But if the outbreak is successfully contained and the vaccination process is accelerated, global economic growth could increase to nearly 5% this year.
The effects of the epidemic will be long-lasting
The World Bank expects the outbreak to have a long-term adverse impact on the global economy, and the world could face a “lost decade” unless sweeping reforms are taken.
Better than expected contractions in advanced economies and a strong recovery in China have helped the global economy avoid a sharper downturn, but for most emerging market and developing economies, the damage has been more severe.
In emerging markets and developing economies, the epidemic has slashed per capita income by 90 percent, pushed millions of people into poverty, reduced investor confidence, increased unemployment and reduced time spent in education, undermining the prospects for poverty alleviation.
The outbreak has also triggered a surge in debt levels in emerging market and developing economies, with government debt as a share of GDP rising by 9 percentage points, the biggest increase since the late 1980s. In response, the World Bank warned: “The world needs to act quickly and forcefully to ensure that this latest wave of debt does not end up in a debt crisis. Reducing debt levels will be the only way for some countries to regain solvency.