The global economy is expected to expand 4% in 2021, assuming an initial COVID-19 vaccine rollout becomes widespread
throughout the year. A recovery, however, will likely be subdued, unless policy makers move decisively to tame the
pandemic and implement investment-enhancing reforms, the World Bank says in its January 2021 Global Economic Prospects.
Although the global economy is growing again after a 4.3% contraction in 2020, 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.
Top near-term policy priorities are controlling the spread of COVID-19 and ensuring rapid and widespread vaccine
deployment. To support economic recovery, 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. “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.”
The collapse in global economic activity in 2020 is estimated to have been slightly less severe than previously
projected, mainly due to shallower contractions in advanced economies and a more robust recovery in China. In contrast,
disruptions to activity in the majority of other emerging market and developing economies were more acute than expected.
“Financial fragilities in many of these countries, as the growth shock impacts vulnerable household and business balance
sheets, will also need to be addressed,” Vice President and World Bank Group Chief Economist Carmen Reinhart said.
The near-term outlook remains highly uncertain, and different growth outcomes are still possible, as a section of the
report details. A downside scenario in which infections continue to rise and the rollout of a vaccine is delayed could
limit the global expansion to 1.6% in 2021. Meanwhile, in an upside scenario with successful pandemic control and a
faster vaccination process, global growth could accelerate to nearly 5 percent.
In advanced economies, a nascent rebound stalled in the third quarter following a resurgence of infections, pointing to
a slow and challenging recovery. U.S. GDP is forecast to expand 3.5% in 2021, after an estimated 3.6% contraction in
2020. In the euro area, output is anticipated to grow 3.6% this year, following a 7.4% decline in 2020. Activity in
Japan, which shrank by 5.3% in the year just ended, is forecast to grow by 2.5% in 2021.
Aggregate GDP in emerging market and developing economies, including China, is expected to grow 5% in 2021, after a
contraction of 2.6% in 2020. China’s economy is expected to expand by 7.9% this year following 2% growth last year.
Excluding China, emerging market and developing economies are forecast to expand 3.4% in 2021 after a contraction of 5%
in 2020. Among low-income economies, activity is projected to increase 3.3% in 2021, after a contraction of 0.9% in
2020.
Analytical sections of the latest Global Economic Prospects report examine how the pandemic has amplified risks around
debt accumulation; how it could hold back growth over the long term absent concerted reform efforts; and what risks are
associated with the use of asset purchase programs as a monetary policy tool in emerging market and developing
economies.
“The pandemic has greatly exacerbated debt risks in emerging market and developing economies; weak growth prospects will
likely further increase debt burdens and erode borrowers’ ability to service debt,” World Bank Acting Vice President for
Equitable Growth and Financial Institutions Ayhan Kose said. “The global community needs to act rapidly and forcefully
to make sure the recent debt accumulation does not end with a string of debt crises. The developing world cannot afford
another lost decade.”
As severe crises did in the past, the pandemic is expected to leave long lasting adverse effects on global activity. It
is likely to worsen the slowdown in global growth projected over the next decade due to underinvestment,
underemployment, and labor force declines in many advanced economies. If history is any guide, the global economy is
heading for a decade of growth disappointments unless policy makers put in place comprehensive reforms to improve the
fundamental drivers of equitable and sustainable economic growth.
Policymakers need to continue to sustain the recovery, gradually shifting from income support to growth-enhancing
policies. In the longer run, in emerging market 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, institutional reforms to spur organic growth are particularly important. In the past, the
growth dividends from reform efforts were recognized by investors in upgrades to their long-term growth expectations and
increased investment flows.
Central banks in some emerging market and developing economies have employed asset purchase programs in response to
pandemic-induced financial market pressures, in many cases for the first time. When targeted to market failures, these
programs appear to have helped stabilize financial markets during the initial stages of the crisis. However, in
economies where asset purchases continue to expand and are perceived to finance fiscal deficits, these programs may
erode central bank operational independence, risk currency weakness that de-anchors inflation expectations, and increase
worries about debt sustainability.
Download Global Economic ProspectsRegional Outlooks:
East Asia and Pacific: Growth in the region is projected to accelerate by 7.4% in 2021. For more, see regional overview.
Europe and Central Asia: The regional economy is forecast to grow by 3.3% this year. For more, see regional overview.
Latin America and the Caribbean: Regional economic activity is expected to grow by 3.7% in 2021. For more, see regional overview.
Middle East and North Africa: Economic activity in the Middle East and North Africa is forecast to advance by 2.1% this year. For more, see regional overview.
South Asia: Economic activity in the region is projected to expand by 3.3% in 2021. For more, see regional overview.
Sub-Saharan Africa: Economic activity in the region is on course to rise by 2.7% in 2021 For more, see regional overview.World Bank Group COVID-19 Response
The World Bank Group, one of the largest sources of funding and knowledge for developing countries, is taking broad, fast action to help developing countries strengthen their pandemic response. It is supporting public health interventions, working
to ensure the flow of critical supplies and equipment, and helping the private sector continue to operate and sustain
jobs. The Bank Group is making available up to $160 billion over a 15-month period ending June 2021 to help more than
100 countries protect the poor and vulnerable, support businesses, and bolster economic recovery. This includes $50
billion of new IDA resources through grants and highly concessional loans and $12 billion for developing countries to finance the purchase and distribution of COVID-19 vaccines.