Risks loom large amid a virus and vaccine face-off


In its latest report, the World Bank has lowered global growth forecast for 2021 to 4% amid a surge in new infections. While most nations saw downgrades, the institution raised India’s forecast by 2.3 percentage points from its June projection. Yet, many risks persist. Mint newspaper explores:

The recession caused by covid-19 has been the severest since the two World Wars and the Great Depression of 1930s. The global economy, which began recovering in mid-2020, is losing steam as the virus strikes back in the UK, the US, Europe and Japan. Advanced economies (US, EU, and Japan) contracted less sharply last year compared to the World Bank’s forecast in June 2020, but are now projected to expand at a slower pace this year. China was a growth outlier last year, having curbed the scourge, and is likely to power the so-called emerging market and developing economies (EMDEs) this year with a 7.9% expansion.

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What risks does the global economy face?

The most perilous risk is the virus itself. Infections could spread rapidly if the pandemic-control measures fail or vaccines are not deployed quickly to cover a large section of the world population. As a result, protracted economic frailty could prompt a surge in insolvency cases and saddle banks with more dud loans, worsening unemployment and consumption demand. If economic activities don’t attain normalcy, fiscally-constrained governments could find it difficult to continue providing support. The economic damage wrought by the virus could last much longer, hurting investment and consumption.

What is the worst-case scenario as per World Bank?

The outlook for 4% global growth in 2021 assumes that daily covid cases decline by June with the help of vaccines, leading to a resumption in activity. The report warns that its forecast is “highly uncertain”. If the pandemic is not contained, the world may see muted growth of 1.6%. In the worst case, where the financial stress intensifies, the world could again see a contraction.

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How has India fared and  where  is  it  headed?

India is estimated to have suffered the worst economic contraction in South Asia in 2020, and is the second-worst performer in the EMDE pack. The pandemic froze consumption and caused massive job losses, with the informal sector receiving a big blow. It is projected to grow by 5.4% this year, but the rebound would be constrained by weak private investment. Covid shock could cut India’s potential growth, and is expected to erase at least 10 years of per-capita income gains in more than a quarter of countries in the EMDEs group.