The global economy experienced an unprecedented economic shock with the advent of the COVID-19 pandemic, that caused widespread disruptions and affected millions of lives and livelihoods. Vaccine rollouts and high inoculation coverage in major economies along with coordinated policy support from Governments across the world have significantly boosted global economic prospects.
On the other hand, the advent of the second wave of the pandemic with new virus mutants, fresh infections across various parts of the world and the possibility of a third wave have raised global uncertainty, dampening prospects of an early recovery.
Taking stock of the current economic situation, we look at the global economic forecasts for the world for 2021-2022, as projected by leading organizations.
The Organization for Economic Cooperation and Development (OECD) on 31 May 2021 revised its global growth projections upwards from the earlier 4.2% (December 2020 Economic Outlook Projection) to 5.8%, which is expected to bring world GDP almost back to pre-pandemic levels by the end of 2022.
The improved forecasts stem from various factors including vaccine rollouts across several economies that led to resumption of business activities across the globe, as restrictions were lifted and sectors reopened, along with swift and coordinated global policy action as well as the massive fiscal stimulus by the United States, that has helped boost global demand.
However, the OECD forecast also warns against potential headwinds that may slow as well as cause an uneven recovery, as some economies recover faster than others, depending on factors such as effectiveness of vaccination programmes and the level of government support.
Real GDP Growth of Select Economies
As per OECD estimates, India is expected to post a strong recovery with an expected real GDP of around 10% in 2021, before declining to 8.2% in 2022. The higher growth projected in 2021 is expected to be driven by pent-up demand for consumer and investment goods.
United States and China are expected to have strong rebounds with growth rates pegged at 6.9% and 8.5% respectively. The Euro Area and Japan are expected to grow much slower, with growth rates at 4.3% and 2.6% respectively.
As per World Bank projections made in January 2021, global economic output is expected to expand by 4% in 2021, which is expected to moderate to 3.8% in 2022, owing to impact of the pandemic on investment and human capital that has dampened growth prospects for emerging market and developing economies. However, while global economic prospects remain uncertain, global recovery is expected to gain momentum as consumption and trade improves, in turn improving investor sentiment, supported by ongoing vaccination, as per the World Bank’s Global Economic Prospects Report.
On the other hand, International Monetary Fund’s (IMF) World Economic Outlook report (WEO) for April 2021 projected a strong recovery for 2021 and 2022, with the global growth forecast pegged at 6% for 2021 and 4.4% for 2022.
Projections were based on the efficacy of vaccine rollouts, with many potential downside and upside risks including divergent recovery speeds. However, with the resurgence of fresh infections in various parts of the world and the advent of the second wave, global growth prospects are likely to be dampened and these projections are likely to be revised soon.
Summary of World Output (Annual % Change): WEO Economic Projections
United Nation’s (UN) World Economic Situation and Prospects (WESP) mid-2021 report of 11 May 2021 also raised the forecast to 5.4% for 2021 from the earlier forecasts in January, mainly on account of the widespread vaccinations across countries and the rebound in growth in the two largest economies of the world – China and the US. However, the resurgence in infections and inadequate vaccinations across several regions of the world threaten a broad-based recovery, as per the report.
Downside Risks and Global Recovery
While the world economy is slowly navigating towards recovery, as many of these reports project, several downside risks remain that have the potential to slowdown the growth trajectory.
Inadequate vaccination in some regions of the world, rise in commodity prices and high inflation volatility, and differing speeds of recoveries leading to wider gaps in living standards are some of the major concerns that have the potential to thwart economic recovery.
Hence, global fiscal and monetary support along with supportive financial conditions to anchor inflation expectations must continue.
Most importantly, the key to a sustainable and robust recovery is the vaccination of the entire global population. As several emerging and developing economies face the challenge of inadequate vaccination and dearth of vaccines, this has the potential to alter the global growth trajectory.
Thus, expedited vaccine production and rollouts across the globe is the urgent need of the hour, which by reducing the severity and frequency of infections will make way for a strong economic revival, according to global analysts.