In 2020, the global economy plummeted 4.3% as poverty, death and illness afflicted millions. But, according to January’s Global Economic Prospects, 2021 bears better news. The World Bank states that the global economy could expand by 4%. This economic growth relies on policymakers’ ability to widely and rapidly distribute the COVID-19 vaccine. It also depends on the ability to contain this virus in the following months, but this alone will not be enough. David Malpass, The World Bank President, said “there needs to be a major push to improve business environments, increase labor and product market flexibility, and strengthen transparency and governance” in order to reach economic recovery. Here is some information regarding how the global economy could expand in 2021.
The 2020 Economic Collapse
The COVID-19 pandemic and the restrictive measures to prevent the spread resulted in a severe contraction of the global economy. In a report by The World Bank in June 2020, predictions initially determined that this contraction would be 5.2%, which would have resulted in the deepest recession since World War II.
However, experts are now saying it may have been less severe than some previously projected due to a more robust recovery in China and shallower contractions in advanced economies overall. Experts predicted that these advanced economies would shrink by 7% in 2020 because of disrupted domestic demand, supply, trade and finance while others anticipated that emerging markets and developing economies (EMDEs) would contract by 2.5%. Luckily, the impact on EMDEs was also more acute than estimates determined.
Economic Growth 2021
Currently, it is not certain if the global economy will increase by 4%. With delayed rollouts of the COVID-19 vaccine and increasing infection rates, this increase could be as low as 1.6%. That amount is not nearly enough to reach a recovery status in 2021. However, if the vaccine process proceeds at a rapid rate and governments control the pandemic, economic growth could reach almost 5%.
In the United States, GDP decreased by 3.6% in 2020. In the Eurozone, this contraction was 7.5% and activity in Japan shrunk by 5.3%. However, 2021 brings hope. Predictions have determined that the United States’ GDP will increase by 3.5%. Meanwhile, in the Eurozone, experts anticipate that output will grow 3.6%. Meanwhile, in Japan, forecasts have determined that its economy will grow by 2.5%.
In China and other emerging markets and developing economies, aggregate GDP could grow by 4.2% in 2021, after a 2.6% decrease in 2020. On the other hand, EMDEs could expand 3.5%, after a 5% contraction in 2020. This means that a 1.6% increase is necessary to reach economic recovery. Meanwhile, in 2020, China’s economy grew by 2% and may expand an additional 7.9% in 2021. Also, low-income economies may not only economically recover, but also grow by 3.3% after a contraction of only 0.9% in 2020.
According to The World Bank’s press release, unless policymakers issue a series of reforms to improve the fundamental drivers of sustainable and equitable economic growth, the next decade could experience growth disappointments due to underemployment, labor force declines in several advanced economies and underinvestment.
To reduce these adverse effects, “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.”
Fortunately, it looks like 2021 will bring hope due to the fact that the global economy could expand. Even with the expansion of the global economy, however, much work is necessary to eliminate long-lasting effects and fully recover.
– Victoria Mangelli