Washington, United States.
The World Bank on Tuesday released a pessimistic diagnosis of the global economy sick with covid-19, warning that its recovery will largely depend on the speed at which mass vaccination campaigns are launched.
The institution lowered its global growth forecast for 2021, although it believes the fall of the economy in 2020 was “less steep” than feared, down 4.3% from the 4.5% forecast in June . .
Global GDP is expected to grow by 4% this year, down 0.2 percentage points from the latest projection, the institution describes in its global economic outlook.
The new forecasts reflect the end-2020 outlook around the world, where COVID-19 infections continue to increase and new variants of the coronavirus have emerged, leading to new restrictions that further disrupt economic activity.
These setbacks have also led to a “significant” reduction in public and private revenues, according to the World Bank. On the one hand, tax revenues have fallen and, on the other, massive layoffs have eroded household purchasing power.
“The recovery is likely to be subdued unless policymakers act decisively to contain the pandemic and implement reforms that increase investment,” warns the institution, which believes “the short-term outlook remains very uncertain.”
The most pessimistic scenario, if Covid-19 infections continue to grow and vaccination campaigns are postponed, foresees an expansion of just 1.6% by 2021.
On the contrary, the most optimistic hypothesis – control of the pandemic and acceleration of vaccinations – points to a growth of almost 5%.
Light recovery
In Latin America and the Caribbean, the multilateral body expects an economic expansion of 3.7% this year, improving the earlier forecast of 2.8% for the region released in June.
“Regional economic activity is expected to grow 3.7% in 2021 as pandemic mitigation initiatives become more flexible, vaccines spread, prices of key commodities stabilize and external conditions improve,” he said. the World Bank.
However, he stressed that the recovery that will come after a decade of slow growth “will be very limited.”
And he warned that a negative scenario, with delays in covid-19 vaccine distribution and secondary economic impacts, could reduce gross domestic product (GDP) growth to 1.9%.
Meanwhile, in the United States, after an estimated contraction of 3.6% in 2020, GDP is expected to pick up to 3.5% in 2021, 0.5 percentage points less than the previous forecast.
The Eurozone will register 3.6% growth, after a decline of 7.4% in 2020, while Japan will grow only 2.5% in 2021 after contracting 5.3% in 2020.
Economic activity will be somewhat more robust in emerging markets and emerging economies.
The World Bank expects these countries to grow 5% this year, mainly thanks to China, which will grow 7.9% after a 2.6% contraction in 2020.
Debt crisis
The inequality in the face of this crisis is “dramatic” and has led to a “devastating rise in extreme poverty,” World Bank president David Malpass complained during a telephone news conference on Tuesday.
“People at the bottom of the income ladder have been hit hardest” by the recession and “are likely to be the last to find work, get health care, get vaccinated and adapt to the economy,” he added.
“The pandemic has plunged millions of people into poverty,” the agency said in its report, urging governments to initiate reforms and massive investment programs to improve health services, education and digital infrastructure.
“The forecast for the global slowdown in growth for the next decade is likely to worsen due to underinvestment, underemployment and a shrinking workforce in many advanced economies,” he warns.
And while the World Bank is often concerned about the accumulation of debt in developing countries and emerging economies, this time it notes that the pandemic has exacerbated financing risks and slow growth significantly.
This further increases the debt burden and undermines the debtor countries’ ability to honor it.
“The global community needs to act quickly and decisively to ensure that the recent accumulation of debt does not lead to a series of debt crises,” warns Ayhan Kose, head of the Fair Growth, Finance and Institutions division, quoted in a press release.
“The developing countries cannot afford another lost decade.”