According to the World Bank’s latest report on Global Economic Prospects, the global economy is expected to expand 4% in 2021, assuming an initial COVID-19 vaccine rollout becomes widespread throughout the year. The financial institution said that a recovery, however, will likely be subdued, unless policy makers move decisively to tame the pandemic and implement investment-enhancing reforms.
Although the global economy is growing again after a 4.3% contraction in 2020, the bank said that 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 that top near-term policy priorities are controlling the spread of COVID-19 and ensuring rapid and widespread vaccine deployment.
To support economic recovery, the bank stressed that authorities also need to facilitate a re-investment cycle aimed at sustainable growth that is less dependent on government debt.
“While the global economy appears to have entered a subdued recovery, policymakers 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.
He added, “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.”
Further to this, the World Bank President was keen to note that all policymakers need to continue to sustain the recovery, gradually shifting from income support to growth-enhancing policies. In the longer run, he said that in emerging markets and developing economies, policies to improve health and education services, digital infrastructure, climate resilience, and business and governance practices will help mitigate the economic damage caused by the pandemic, reduce poverty and advance shared prosperity.
In the context of weak fiscal positions and elevated debt, the official said that institutional reforms to spur organic growth are particularly important.