As the COVID-19 pandemic claimed hundreds of thousands of lives and the livelihood of the people around the world the 2020 pandemic also caused the deepest recession in 74 years in the global economy. It is expected by the economic experts that the global economy will have an expansion of 4% in 2021, assuming that the introduction and launch of the COVID-19 continues to roll out throughout the year. Recovery from the pandemic will likely be subdened, unless the policy makers actively move forward to make plans to overcome the global situation and implement investment-enhancing reforms, says the World Bank in its 2021 January Report, Global Economic Prospects.
Even though there is a 4.3% growth in the global economy following to the contraction in 2020, the COVID-19 pandemic has caused a huge toll of deaths and illness, and pushed millions into poverty, and may depress economic activity and income growth for a considerably extended period. The top concerns of the global economy were to implement policies to control the rapid spread of the COVID-19 virus and nationwide distribution of the vaccine. In the meantime, the government authorities and the economy experts needed to facilitate a reinvestment cycle targeted at an enduring growth of the economy except for being dependent on government debts.
“While the global economy appears to have entered a subdued recovery, policy makers face formidable challenges – in health, managing debts, implementation of budget policies, central banking, and structured reforms as they try to ensure that this still fragile global recovery gains traction and sets a foundation for robust growth”. Said by the group president of the World Bank, David Malpass. To overcome the pandemic related consequences, and counter the investment headwinds, it is vital to give a massive push to improve the environments of business, labor, flexibility of the product market and build up a stronger transparency and governance.
The downsize in the 2020 global economy activity is estimated to have been alleviate than it was previously projected, due to less-depth contractions in advanced economies and stronger economic recovery took place in China. On the other hand, the market situation for other emerging markets and development economies were more acute than it was previously projected, due to disruptions happening in their activities.
According to Carmet Reinhart, the Vice President and the World Bank Group Chief Economist, financial fragilities in many of those countries, as the growth shock impacts, vulnerable household and business balance sheets, will also need to be addressed.
The projections on the global market remain considerably uncertain, and variable outcomes on the actual growth are still highly possible. On the other hand, if the virus infections continued to improve while a delay in the vaccine distribution process, will result in limiting the global economic growth to stagnate somewhere below 1.6% in 2021. On the other hand, an upside scenario of a successful control of the infection along with a faster vaccine rollout process will accelerate the global economy expansion up to 5%.
If the infection managed to announce it’s nasty comeback during the first quarter of the year 2021, the recovery for advanced economies were forecasted to be challenging. Following an expansion of 3.6% in the United States GDP in 2020, it is forecast to expand by 3.5% in 2021. In the 19-member Eurozone, a growth of 3.6% is anticipated in 2021, as it experienced a 7.4% decline during the pandemic in 2020. As the world’s third largest economy, Japan experienced a 5.3% shrink in its economic activities during 2020 and is now forecast to grow by 2.5% in 2021.
Collective Gross Domestic Products (GDP) in emerging markets and developing economies like China is projected to grow by 5% in 2021. This growth in said market is projected after the contraction of 2.6%in 2020. Economy of China in 2021 is expected to grow by 7.9% and despite the pandemic situation, China had an economic growth of 2% back in 2020. Excluding China, collective expansion in other emerging markets and developing economies are expected to grow by 3.4% in 2021, after a contraction of 5% in the previous year. Cluster of low-income economies, activity is expected to improve by 3.3% in 2021, after a contraction of 0.9% in the previous year.
The most recent document of Global Economic Prospect Report’s analysis section highlights how the pandemic has caused to improve risks around debt accumulation; how it could holdback growth over the long-term absent concerted reform efforts; and the associated risks of the use of asset purchase programs as a tool of monetary policy in emerging market and developing economies.
According to the Acting Vice President for Equitable Growth and Financial Institutions of World Bank, Ayhan Kose, the global economy needs to act rapidly and forcefully to make sure the recent debt accumulation does not end with a string of the debt crisis. The developing world cannot afford another lost decade.
As all other severe level crises in the past, the COVID-19 pandemic is also projected to leave long-term unfavorable influences on global economic activity. It is most probably to force to downsize the global growth projected over the next ten-year period or even further, due to lack of investments, joblessness, and workforce declines in the number of advanced economies in the world. If history is any guide, the world economy is going forward for a Decade of Disappointment in its economic growth. To prevent that from happening, the policy makers should come forward to do across the board reforms to improve the fundamental drivers of sustainable economic growth.
The policy makers should focus to sustain the recovery process, while moving forward to growth-enhancing policies rather than being sucked in the income support policies. Emerging market and developing economies should focus in improving the policies in health and education, digital infrastructure, resilience to the climate changes, and business and governance in the long run, to mitigate the damage caused by the pandemic to the economy, to recover from poverty, and advance shared prosperity, weak fiscal positions and elevated debits. in the past, the dividends of the growth from reform efforts were identified by investors in upgrades to their forecasted long-term growth and increased investment flows.
For the first time in many cases, the central banks of the emerging markets and developing economies have introduced asset purchase programs as result of a response to pandemic-induced financial market pressure. When focused on the market failure, these asset purchase programs have helped to stabilize financial markets during the first phase of the crisis. Anyhow, if this asset purchase programs happened to expand in those economies, shall erode central bank operational independence, risk currency weakness to de-anchor inflation and expectations and will also cause the worries on debt sustainability.
