Pandemic recovery projections

“One year into the COVID-19 pandemic, the accumulating human toll continues to raise concerns, even as growing vaccine coverage lifts sentiment. High uncertainty surrounds the global economic outlook, primarily related to the path of the pandemic. The contraction of activity in 2020 was unprecedented in living memory in its speed and synchronised nature,” commented the International Monetary Fund (IMF) in its ‘Global Economic Outlook’ released this April.

“The global economy is projected to grow at 6 per cent in 2021, moderating to 4.4 per cent in 2022. The contraction for 2020 is 1.1 percentage points smaller than projected in the October 2020 World Economic Outlook (WEO), reflecting the higher-than-expected growth out-turns in the second half of the year for most regions after lockdowns were eased and as economies adapted to new ways of working,” it continued.

The report indicates that global growth is expected to moderate to 3.3 per cent over the medium term—reflecting projected damage to supply potential and forces that pre-date the pandemic, including ageing-related slower labour force growth in advanced economies and some emerging market economies.

“Thanks to unprecedented policy response, the COVID-19 recession is likely to leave smaller scars than the 2008 global financial crisis. However, emerging market economies and low-income developing countries have been hit harder and are expected to suffer more significant medium-term losses,” explained the report.

It acknowledged that youth, women, workers with relatively lower educational attainment and the informally employed have generally been hit hardest. It also believes it likely that income inequality will increase significantly because of the pandemic. Unequal setbacks to schooling could further amplify income inequality.

“Future developments will depend upon the path of the health crisis, including whether the new COVID-19 strains prove susceptible to vaccines or they prolong the pandemic; the effectiveness of policy actions to limit persistent economic damage (scarring); the evolution of financial conditions and commodity prices; and the adjustment capacity of the economy. The ebb and flow of these drivers and their interaction with country-specific characteristics will determine the pace of the recovery and the extent of medium-term scarring across countries,” added the IMF.

G-24 members commended swift international economic and health support for the crisis so far but noted intensified action is needed to end the pandemic and prevent long-term economic damage in vulnerable nations. Members noted that COVID-19 severely disrupted economic activity in many developing nations and intensified their fiscal and debt problems. Recovery to pre-pandemic levels could be protracted where countries lack the revenues or borrowing capacity needed to stimulate their economies.

Fast access to affordable vaccines will be crucial for recovery in developing countries. Access now is heavily constrained by existing supply, which has mostly been purchased by advanced economies. G-24 members called on the World Trade Organisation and MDBs to seek solutions to scale up the production of vaccines, including addressing intellectual property rules to expand the manufacturing of vaccines and other medical products needed to treat those infected by COVID-19.