Global economy recovery prospects: year of 2021Economy 31 May 2021
It seems that Covid-19 pandemic is now at its quite end. Or at least it is in its “inactive” phase. The global economy is yet to be recovered from turbulent 2020 which left many countries across globe in recession. As some economies are recovering and registering slight rise, the globe is measuring constant stagnating trends for months. This analysis will present most of the notables prediction for the rest of this year in terms of economic development in the global level.
The International Monetary Fund (IMF) believes that recoveries of the global economies are “divergent”. In its report published in April this year, the IMF believes that there is a multispeed, incomplete recovery brought by the second and third infection waves have necessitated renewed restrictions in many countries since the October 2020 World Economic Outlook (WEO) forecast.
This stop-go rhythm means that recovery is uneven and far from complete. Although GDP, in general, recovered stronger than expected in the second half of 2020, it remains significantly below pre-pandemic trends in most countries. Moreover, high-frequency indicators suggest a softening of momentum in some sectors in early 2021. Besides, the differences across countries are visible – across countries, the recovery has been shaped by the path of the pandemic, curbs to mobility imposed to contain its progress, and policy actions.
Output losses have been particularly large for countries that rely on tourism and commodity exports and for those with limited policy space to respond. Many of these countries entered the crisis in a precarious fiscal situation and with less capacity to mount major health care policy responses, forcing stricter lockdowns to contain the spread of the virus. Factors such as the proportion of “teleworkable” jobs, share of employment in small and medium enterprises, depth of capital markets, size of the informal sector, and quality of and access to digital infrastructure also played roles—in both the downturn and the speed of the recovery. Such differences may, in turn, lead to lasting divergences across countries if the pandemic is not beaten back universally. Close to 95 million more people are estimated to have fallen below the threshold of extreme poverty in 2020 compared with pre-pandemic projections, reversing a two-decade-long trend of global poverty reduction.
Strong demand for products that support working from home and the release of pent-up demand for durable goods more generally (especially automobiles) have been key factors behind the global recovery since the second half of 2020. Following a short-lived and synchronized collapse, industrial production has returned to pre-pandemic levels. Consumption of contact-intensive services has remained depressed, however, as the reopening of many economies in May–June—which led to a surprise rebound in the third quarter of 2020—also triggered a second wave of infections and further curbs to mobility in the closing months of 2020.
Travel, the arts, entertainment, sports, hospitality, and brick-and-mortar retail have operated at a fraction of their capacity since the beginning of the pandemic and will not see a substantial rebound before the pandemic is brought under control. International trade in goods has shown similar patterns. Merchandise trade volumes have returned to pre-pandemic levels.
The World Bank believes thar after a sharp slowdown to 0.9 percent in 2020, output in East Asia and Pacific (EAP) is projected to expand 7.4 percent in 2021, to a level still around 3 percent below pre-pandemic projections. While China is expected to recover strongly, the rest of EAP is only expected to return to a level around 7.5 percent below pre-pandemic projections in 2022, with significant cross-country differences. The pandemic is expected to leave lasting economic scars on the region and dampen potential growth and incomes. Key downside risks to the outlook include the possibility of renewed outbreaks and delayed rollout of vaccines; heightened financial stress amplified by elevated debt levels; and the possibility of more severe and longer-lasting effects from the pandemic, including persistent policy uncertainty and subdued investment amid lingering trade tensions.
Output in the Middle East and North Africa (MENA) is estimated to have contracted by 5.0 percent in 2020. Significant disruptions related to COVID-19 have been compounded by the sharp fall in oil prices and oil demand. This contraction adds to already-slowing growth in the region and compounds pre-pandemic per capita income losses. Growth is expected to improve to a modest 2.1 percent in 2021, as the pandemic is brought under control and lockdown restrictions are eased, global oil demand rises, and policy support continues. The pandemic is expected to leave lasting economic scars on the region, however, and dampen potential growth. A resurgence of COVID-19, further disruptions related to geopolitical tensions and political instability, renewed downward pressure on oil prices, and additional balance of payments stress are key downside risks to the outlook.
The pandemic has had a devastating impact on South Asia (SAR), leading to an estimated 6.7 percent output contraction in 2020. The region is projected to grow by 3.3 percent in 2021 and 3.8 percent in 2022, substantially weaker growth than during the decade leading up to the pandemic. COVID-19 is expected to inflict long-term damage on growth prospects by depressing investment, eroding human capital, undermining productivity, and depleting policy buffers. The outlook is highly uncertain and subject to multiple downside risks, including the possibility of more severe and longer-lasting damage from the pandemic, financial and debt distress related to an abrupt tightening of financing conditions or widespread corporate bankruptcies, adverse effects of extreme weather and climate change, weaker-than-expected recoveries in key partner economies, and a worsening of policy- and security-related uncertainty.