The Economy

World Bank Lowers 2021 Growth Forecast to 4%

There is a “material risk” that setbacks in containing the pandemic could result in a much weaker recovery, the bank warns.
Matthew HellerJanuary 6, 2021

The World Bank lowered its growth forecast for the global economy last year, reflecting the resurgence of the coronavirus pandemic and renewed restrictions on economic activity.

According to the bank’s latest semi-annual Global Economic Prospects report, the global economy “appears to have entered a subdued recovery” but there is a “material risk” that setbacks in containing the pandemic could result in a much weaker rebound at a time when countries were faced with growing financial difficulties.

“To overcome the impacts of the pandemic and counter the investment headwind, there needs to be a major push to improve business environments, increase labor and product market flexibility, and strengthen transparency and governance,” World Bank President David Malpass said in a news release.

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For 2021, the bank said the global economy is expected to grow 4% this year after contracting 4.3% in 2020 — 0.2 percentage point lower than it forecast in June.

Different outcomes are still possible, ranging from 1.6% under a downside scenario in which infections continue to rise and the rollout of a vaccine is delayed to nearly 5% under an upside scenario with successful pandemic control and a faster vaccination process.

U.S. GDP is forecast to expand 3.5% in 2021, after an estimated 3.6% contraction in 2020.

The collapse in global economic activity in 2020 was estimated to have been slightly less severe than previously projected, due in part to a more robust recovery in China. But the report also noted that “In advanced economies, a nascent rebound stalled in the third quarter following a resurgence of infections, pointing to a slow and challenging recovery.”

The bank also warned that the pandemic had triggered a surge in debt levels among emerging market and developing economies, with government debt up by 9 percentage points of GDP — the largest one-year spike since the late 1980s.

“The global community needs to act rapidly and forcefully to make sure the latest wave of debt does not end with debt crises,” it said, adding that reductions in debt levels would be the only way for some countries to return to solvency.