The global economy is on track to grow at the fastest post-recession pace in 80 years, thanks to steady – but uneven – vaccine distribution, the World Bank said in a new report released Tuesday.
The Washington-based institution forecast that global growth will increase by 5.6% in 2021, an increase from its projection of 4.1% in January. By comparison, global GDP contracted at a 3.5% annualized rate in 2020, when economies across the world came to a near standstill to slow the spread of COVID-19.
The projected growth would make 2021 the fastest year for economic expansion since 1973 when it grew 6.6%.
Still, the anti-poverty agency warned of possible downsides to the outlook, including the possibility that the virus continues to spread, rising and persistent inflation that forces central banks to raise interest rates and high debt burdens.
"If growing inflationary pressures cause financial market participants to become concerned about persistently higher inflation in advanced economies, they may reassess prospects for continued accommodative monetary policies by major central banks," the World Bank said. "This could trigger a significant rise in risk premia and borrowing costs."
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In its Global Economic Prospects report, however, the World Bank warned about the growing threat of a dramatically unequal recovery: Although it expects the U.S. economy to expand by 6.8% this year – the strongest rate in years – and the Chinese economy to grow by 8.5%, it's only projecting 2.9% growth among low-income countries, the slowest pace in two decades.
And while 90% of advanced economies are expected to return to pre-pandemic levels next year, just a third of developing countries will reach that same level, the agency said.
"In low-income countries, the effects of the pandemic are reversing earlier gains in poverty reduction and compounding food insecurity and other long-standing challenges," the report said. "The global outlook remains highly uncertain, with major risks around the path of the pandemic and the possibility of financial stress amid large debt loads."
Access to vaccines remains a major concern in some nations, the World Bank said; until the pandemic is under control globally, many policymakers will struggle to aid the recovery with fiscal stimulus, while also safeguarding price stability and fiscal sustainability, the institution said.