30th
anniversary
editionA World Bank Group
Flagship Report

JUNE 2021

GlobalEconomic
Prospects

Global
Economic
Prospects

JUNE 2021

GlobalEconomic
Prospects© 2021 International Bank for Reconstruction and Development / The World Bank
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ISBN (paper): 978-1-4648-1665-9
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DOI: 10.1596/978-1-4648-1665-9
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The cutoff date for the data used in this report was June 2, 2021.

Summary of Contents
Acknowledgments ............................................................................................................................... xiii
Foreword ............................................................................................................................................. xv
Executive Summary ............................................................................................................................ xvii
Abbreviations ...................................................................................................................................... xix
Chapter 1

Global Outlook ........................................................................................................ 1
Box 1.1 What is next? Growth scenarios beyond 2021 ................................................ 9
Box 1.2 Regional perspectives: Recent developments and outlook ...............................25
Box 1.3 Recent developments and outlook for low-income countries ..........................30

Chapter 2

Regional Outlooks.................................................................................................. 57
East Asia and Pacific.................................................................................................59
Europe and Central Asia...........................................................................................65
Latin America and the Caribbean..............................................................................73
Middle East and North Africa...................................................................................81
South Asia ..............................................................................................................87
Sub-Saharan Africa...................................................................................................93

Chapter 3

High Trade Costs: Causes and Remedies ...............................................................103
Box 3.1 Understanding the determinants of trade costs ............................................ 112

Chapter 4

Emerging Inflation Pressures: Cause for Alarm? .....................................................129
Box 4.1 Inflation during global recessions................................................................ 137
Box 4.2 Food price volatility and inflation in low-income countries .......................... 144

Statistical Appendix ............................................................................................................................ 161
Selected Topics ................................................................................................................................... 168v

Contents
Acknowledgments ............................................................................................................................... xiii
Foreword ............................................................................................................................................. xv
Executive Summary ............................................................................................................................ xvii
Abbreviations ...................................................................................................................................... xix

Chapter 1

Global Outlook ....................................................................................................... 1
Summary ................................................................................................................. 3
Global context.......................................................................................................... 7
Pandemic developments ..................................................................................... 7
Global trade ....................................................................................................... 8
Financial markets ............................................................................................. 16
Commodity markets......................................................................................... 17
Major economies: Recent developments and outlook ................................................ 18
United States ................................................................................................... 18
Euro area ......................................................................................................... 19
Japan ............................................................................................................... 19
China .............................................................................................................. 20
Emerging market and developing economies ............................................................ 20
Recent developments ........................................................................................ 20
Outlook........................................................................................................... 21
Per capita income growth and poverty ............................................................... 24
Global outlook and risks ......................................................................................... 27
Global outlook ................................................................................................. 27
Risks to the outlook.......................................................................................... 29
Policy challenges..................................................................................................... 37
Key global challenges ........................................................................................ 38
Challenges in advanced economies .................................................................... 38
Challenges in emerging market and developing economies ................................. 40
References .............................................................................................................. 48

Chapter 2

Regional Outlooks ................................................................................................. 57
East Asia and Pacific ............................................................................................. 59
Recent developments ........................................................................................... 59

vii

Chapter 2

Outlook .............................................................................................................. 60
Risks ................................................................................................................... 62
Europe and Central Asia ......................................................................................... 65
Recent developments.......................................................................................... 65
Outlook ............................................................................................................ 66
Risks ................................................................................................................. 69
Latin America and the Caribbean ........................................................................... 73
Recent developments.......................................................................................... 73
Outlook ............................................................................................................ 74
Risks ................................................................................................................. 76
Middle East and North Africa ................................................................................ 81
Recent developments.......................................................................................... 81
Outlook ............................................................................................................ 82
Risks ................................................................................................................. 84
South Asia.............................................................................................................. 87
Recent developments.......................................................................................... 87
Outlook ............................................................................................................ 88
Risks ................................................................................................................. 90
Sub-Saharan Africa ................................................................................................ 93
Recent developments.......................................................................................... 93
Outlook ............................................................................................................ 94
Risks ................................................................................................................. 96
References ............................................................................................................ 100

Chapter 3

High Trade Costs: Causes and Remedies .............................................................. 103
Introduction......................................................................................................... 105
Prospects for trade growth ..................................................................................... 107
Patterns in trade costs ........................................................................................... 109
Correlates of trade costs ........................................................................................ 111
Policies to lower trade costs ................................................................................... 118
At-the-border measures ................................................................................. 119
Between-the-border measures ........................................................................ 120
Behind-the-border measures .......................................................................... 120
Comprehensive reform packages .................................................................... 121
Conclusion........................................................................................................... 123
References ............................................................................................................ 124

viii

Chapter 4

Emerging Inflation Pressures: Cause for Alarm? ................................................... 129
Introduction .........................................................................................................131
Global inflation before the pandemic .....................................................................134
Inflation during the pandemic ...............................................................................134
Drivers of inflation during the pandemic ................................................................135
Relative importance of drivers of inflation ..............................................................141
Prospects for inflation ...........................................................................................142
Short-term inflation prospects ........................................................................142
Longer-term inflation prospects .....................................................................149
Policy implications ................................................................................................151
Annex 4.1 Methodology and database ....................................................................152
References ............................................................................................................156

Statistical Appendix ............................................................................................................................ 199
Data and Forecast Conventions ........................................................................................................... 205
Selected Topics ................................................................................................................................... 206

Boxes

Box 1.1 What is next? Growth scenarios beyond 2021 ............................................... 9
Box 1.2 Regional perspectives: Recent developments and outlook ............................. 25
Box 1.3 Recent developments and outlook for low-income countries ........................ 30
Box 3.1 Understanding the determinants of trade costs .......................................... 112
Box 4.1 Inflation during global recessions.............................................................. 137
Box 4.2 Food price volatility and inflation in low-income countries ........................ 144

Figures

1.1

Global prospects ..................................................................................... 5

1.2

Global risks and policy challenges ............................................................ 6

1.3

Pandemic developments .......................................................................... 8

B1.1.1

Policy support and vulnerabilities .......................................................... 10

B1.1.2Global recovery in historical context ...................................................... 12

B1.1.3

Alternative scenarios for global growth ................................................... 13

B1.1.4Global recovery scenarios in historical context ........................................ 15

1.4

Global trade ......................................................................................... 16

1.5

Global finance ...................................................................................... 17

1.6

Commodity markets ............................................................................. 18

1.7

Advanced economies ............................................................................. 19

1.8

China ................................................................................................... 20ix

Figuresx

1.9

Recent developments in emerging market and developing economies ....... 21

1.10

Recent developments in emerging market and developing economies,
excluding China .................................................................................... 22

1.11

Prospects for growth in emerging market and developing economies ........ 23

1.12

Long-term outlook in emerging market and developing economies .......... 24

B1.2.1

Regional growth.................................................................................... 26

1.13

Poverty and per capita income in emerging market and developing
economies............................................................................................. 27

1.14

Global outlook and risks........................................................................ 28

1.15

Downside risk: Continued COVID-19 flare-ups and new variants ........... 29

B1.3.1

Recent developments ............................................................................. 31

B1.3.2

Outlook ............................................................................................... 32

B1.3.3Risks .................................................................................................... 34

1.16

Downside risk: Financial market stress ................................................... 35

1.17

Downside risk: Corporate defaults and deleveraging ................................ 36

1.18

Upside risk: Rapid end of the pandemic at the global level....................... 37

1.19

Upside risk: Sustained, broad-based global upturn .................................. 37

1.20

Monetary, financial, and fiscal policies in advanced economies ................ 39

1.21

Structural policies in advanced economies .............................................. 40

1.22

Monetary and financial policies in EMDEs............................................. 42

1.23

Fiscal policy in emerging market and developing economies .................... 43

1.24

Structural policies in emerging market and developing economies ............ 45

2.1.1

China: Recent developments.................................................................. 60

2.1.2

EAP: Recent developments .................................................................... 61

2.1.3

EAP: Outlook ....................................................................................... 62

2.1.4

EAP: Risks............................................................................................ 63

2.2.1

ECA: Recent developments ................................................................... 66

2.2.2

ECA: Outlook ...................................................................................... 67

2.2.3

ECA: Risks ........................................................................................... 68

2.3.1

LAC: Recent developments.................................................................... 74

2.3.2

LAC: Outlook ...................................................................................... 75

2.3.3

LAC: Risks ........................................................................................... 76

2.4.1

MENA: Recent developments ................................................................ 82

2.4.2

MENA: Outlook .................................................................................. 83

2.4.3

MENA: Risks ....................................................................................... 84

2.5.1

SAR: Recent developments .................................................................... 88

2.5.2

SAR: Outlook ....................................................................................... 89

Figures

Tables2.5.3

SAR: Risks ........................................................................................... 90

2.6.1

SSA: Recent developments .................................................................... 94

2.6.2

SSA: Outlook ...................................................................................... 95

2.6.3

SSA: Risks ............................................................................................ 96

3.1

Global trade ........................................................................................106

3.2

Evolution of global trade ......................................................................108

3.3

Trade costs ..........................................................................................110

B3.1.1

Estimated contributions to trade costs ...................................................114

3.4

Trade policy, border processes, and logistics ..........................................116

3.5

Trade costs in EMDEs, by country characteristics..................................117

3.6

Services trade restriction policies ...........................................................118

3.7

Regional trade agreements ....................................................................119

3.8

Customs and border procedures............................................................120

3.9

Impact of policy improvements on trade costs .......................................121

4.1

Price trends .........................................................................................131

4.2

Inflationary pressures ...........................................................................133

4.3

Global inflation ...................................................................................135

4.4

Inflation during the pandemic ..............................................................136

B4.1.1

Headline CPI inflation around global recessions ....................................138

B4.1.2Evolution of inflation during 2009 and 2020 global recessions ...............138

B4.1.3

Drivers of disinflation in past global recessions ......................................139

B4.1.4

Inflation in 2008-10 and 2020-21 ........................................................140

4.5

Drivers of inflation in 2020-21 .............................................................142

4.6

Prospects for inflation ..........................................................................143

B4.2.1

Inflation developments in LICs ............................................................145

B4.2.2

Outlook for inflation in LICs ...............................................................146

4.7

Inflation expectations in 2008-10 and 2020-21 .....................................150

1.1

Real GDP ................................................................................................ 4

B1.3.1

Low-income country forecasts ................................................................. 33

1.2

Emerging market and developing economies ............................................ 47

2.1.1

East Asia and Pacific forecast summary .................................................... 64

2.1.2

East Asia and Pacific country forecasts ..................................................... 64

2.2.1

Europe and Central Asia forecast summary .............................................. 70

2.2.2

Europe and Central Asia country forecasts ............................................... 71xi

Tables

xii

2.3.1

Latin America and the Caribbean forecast summary ................................ 78

2.3.2

Latin America and the Caribbean country forecasts ................................. 79

2.4.1

Middle East and North Africa forecast summary ..................................... 86

2.4.2

Middle East and North Africa economy forecasts .................................... 86

2.5.1

South Asia forecast summary.................................................................. 92

2.5.2

South Asia country forecasts................................................................... 92

2.6.1

Sub-Saharan Africa forecast summary ..................................................... 98

2.6.2

Sub-Saharan Africa country forecasts ...................................................... 99

3.1

Data employed in the panel regression .................................................. 123

3.2

Panel regression results ........................................................................ 124

4.1

LICs with highest food insecure populations ......................................... 155

Acknowledgments
This World Bank Group Flagship Report is a product of the Prospects Group in the Equitable Growth, Financeand Institutions (EFI) Vice Presidency. The project was managed by M. Ayhan Kose and Franziska Ohnsorge.
Global and regional surveillance work was coordinated by Carlos Arteta. The report was preparedby a team that included John Baffes, JustinDamien Guénette, Jongrim Ha, Osamu Inami,
Alain Kabundi, Sergiy Kasyanenko, Sinem Kilic
Celik, Gene Kindberg-Hanlon, Patrick Kirby,
Peter Nagle, Cedric Okou, Lucia Quaglietti, Franz
Ulrich Ruch, Naotaka Sugawara, Ekaterine
Vashakmadze, Dana Vorisek, Collette Wheeler,
and Takefumi Yamazaki.
Research assistance was provided by Damien
Boucher, Dhruv Devesh Gandhi, Hrisyana
Doytchinova, Arika Kayastha, Maria Hazel
Macadangdang, Muneeb Ahmad Naseem, Julia
Roseman Norfleet, Vasiliki Papagianni, Lorëz
Qehaja, Shijie Shi, Kaltrina Temaj, Anh Van Le,
Jingran Wang, Xinyue Wang, Jinxin Wu, andJuncheng Zhou. Modeling and data work were
provided by Rajesh Kumar Danda and Shijie Shi.
Online products were produced by Graeme
Littler. Alejandra Viveros managed communications and media outreach with a team that
included Mark Felsenthal, Mikael Reventar, andextensive support from the World Bank’s media

and digital communications staffs. Graeme Littler
provided editorial support, with contributions
from Adriana Maximiliano.
The print publication was produced by Adriana
Maximiliano, in collaboration with Luiz Almeida,
Andrew Charles Berghauser, Cindy A. Fisher,
Michael Harrup, Maria Hazel Macadangdang, andJewel McFadden.
Regional projections and write-ups were producedin coordination with country teams, country
directors, and the offices of the regional chief
economists.
Many reviewers provided extensive advice andcomments. The analysis also benefited from comments and suggestions by staff members fromWorld Bank Group country teams and other
World Bank Group Vice Presidencies as well as
Executive Directors in their discussion of thereport on June 1, 2021. However, both forecasts
and analysis are those of the World Bank Group
staff and should not be attributed to Executive
Directors or their national authorities.

xiii

Foreword
Following last year’s collapse, the global economy
is experiencing an exceptionally strong but unevenrecovery. While advanced economies are rebounding, many of the world’s poorest countries
are being left behind, and much remains to bedone to reverse the pandemic’s staggering humanand economic costs. Moreover, the recovery is notassured: the possibility remains that additional
COVID-19 waves, further vaccination delays,
mounting debt levels, or rising inflationarypressures deliver setbacks.
The near-term resumption of growth cannot makeup for the misery that the pandemic has inflictedon the poorest and its disproportionate impact onvulnerable groups, including women, school-age
children, and informal and unskilled workers,
which has widened inequality. As this edition of
the Global Economic Prospects highlights, theuneven recovery underscores the need for a
forceful policy effort to address multiple near- andlong-term challenges. This policy response
requires speedy action from governments, theprivate sector, and the international community.
First and foremost, expanding vaccine distribution and deployment, especially to developing
countries, is a precondition to economic recovery.
This requires overcoming obstacles in procuring
and distributing vaccines including by redirecting
excess vaccine supplies from some advanced
economies to developing countries that havedelivery programs in place. This also entails
expanding vaccines production, lifting trade
restrictions on vaccine inputs, and improving thetransparency of vaccine orders, options anddelivery schedules.
Attention to debt is another critical task. The last
decade saw the largest, fastest, and most broadbased increase in debt levels around the world.
The pandemic, which spurred an unprecedented
buildup in government debt in many economies,
amplified this trend. These developments highlight the importance of careful use of debtfinanced spending. In particular, capital needs tobe allowed to flow for productive uses, especiallyin countries that have implemented large-scale
fiscal support. Effective domestic revenue mobilization and robust medium-term fiscal frameworks
are essential to widen fiscal space, foster policy
credibility, and bolster debt sustainability.
Improved debt management and debt transparency are critical components of sound governance.
These challenges are particularly important for
low-income countries, half of whom faced debt
distress or were at high risk of it even before thepandemic struck. The resources required to service
debt—due to high interest rates and elevated debt
levels divert funds from investment in health,nutrition, education, and other critical development needs. It will take continued global cooperation—including greater participation by theprivate sector—to provide debt relief to thepoorest countries and fund the investments
needed to foster and sustain longer-term growth.
The pandemic not only reversed gains in global
poverty reduction for the first time in a generation
but also deepened the challenges of food insecurity
and rising food prices for many millions of people.
This is particularly prevalent among the poorest
countries and populations, where higher prices offood can devastate discretionary incomes. As thereport highlights, attempts to lower food priceinflation through distortionary, opaque pricesubsidies or protectionist policies could prove to
be self-defeating and ultimately lead to higher
costs. Instead, measures to scale up social safety
net programs would be more helpful. International support to improve logistics and climate
resilience of local food supply could also help withlonger-term food security.
The post-pandemic recovery presents policy
makers with a unique opportunity to steer countries onto a path of green, resilient, and inclusive
development. To achieve this, climate anddevelopment policies need to be integrated, andincentives aligned to achieve both climate anddevelopment goals. Smart climate action includes
xv

investing in low carbon and renewable energy
sources, improving diagnostics to identify priority
areas for greenhouse gas emissions reduction andclimate resilience, and prioritizing climate
spending to achieve maximum impact. Private
investment will be needed to meet green
investment needs. An effective and transparent
regulatory environment, including an adequate
carbon tax policy, are of paramount importance.
For these and other policy objectives, fostering
data transparency is essential to guarantee a more
efficient allocation of resources. In the context oftrade, this is exemplified by the need to enhance
information flows among participants of global
value chains. Another important avenue to bolster
trade is to reduce the costs of cross-border
trading. These costs currently double the price oftraded goods over domestic goods and far exceed
the costs of tariffs alone, and they are particularlyhigh in many developing economies. Measures tolower trade costs include simplifying burdensome
border procedures, improving transport infrastructure and governance, enabling greater
competition in shipping, logistics, and wholesale
and retail trade, lowering trade barriers, andensuring greater transparency and predictability oftrade policy. As the report explores in detail, suchactions could help trade—long a key driver ofdevelopment—become a solid engine of growthagain.
How national governments, the private sector,
and international institutions respond to thechallenges of poverty, inequality, and climatechange as we emerge from a crisis that has affected
us all will be defining choices of our age. We needto act forcefully to address these challenges and beable to pursue green, resilient, and inclusive
development.
David Malpass
President
World Bank Groupxvi

Executive Summary
The world economy is experiencing an exceptionally strong but highly uneven recovery. Global growth is set toreach 5.6 percent in 2021—its strongest post-recession pace in 80 years—in part underpinned by steady but
highly unequal vaccine access. Growth is concentrated in a few major economies, with most emerging market
and developing economies (EMDEs) lagging behind: while about 90 percent of advanced economies are
expected to regain their pre-pandemic per capita income levels by 2022, only about one-third of EMDEs are
expected to do so. 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 global outlook remains
highly uncertain, with major risks around the path of the pandemic and the possibility of financial stress amid
large debt loads. Controlling the pandemic at the global level will require more equitable vaccine distribution,
especially for low-income countries. In addition to the necessary efforts to pursue widespread vaccination,
policy makers face a difficult balancing act as they seek to nurture the recovery through efficiently allocatedfiscal support while safeguarding price stability and fiscal sustainability. Policy makers can also help entrencha lasting recovery by undertaking growth enhancing reforms and steering their economies onto a green,
resilient, and inclusive development path. Prominently among the necessary policies are efforts to lower trade
costs so that trade can once again become a robust engine of growth.
Global outlook. The global economy is set to
expand 5.6 percent in 2021—its strongest postrecession pace in 80 years. This recovery is
uneven and largely reflects sharp rebounds insome major economies—most notably theUnited States, owing to substantial fiscal
support—amid highly unequal vaccine access. In
many emerging market and developing economies (EMDEs), elevated COVID-19 caseloads,
obstacles to vaccination, and a partial withdrawalof macroeconomic support are offsetting some of
the benefits of strengthening external demandand elevated commodity prices. By 2022, global
output will remain about 2 percent below prepandemic projections, and per capita income
losses incurred last year will not be fully unwoundin about two-thirds of EMDEs. The global
outlook remains subject to significant downside
risks, which include the possibility of large
COVID-19 waves in the context of new virus
variants and financial stress amid high EMDE
debt levels. Controlling the pandemic at the
global level will require more equitable vaccine
distribution, especially for low-income countries.
The legacies of the pandemic exacerbate thechallenges facing policy makers as they balance
the need to support the recovery whilesafeguarding price stability and fiscal sustainability. As the recovery becomes more entrenched,policy makers also need to continue efforts
toward promoting growth-enhancing reforms andsteering their economies onto a green, resilient,and inclusive development path.
Regional Prospects. The recovery in all EMDE
regions is expected to be insufficient to reverse
the damage from the pandemic. By 2022, output
in all regions is expected to remain below prepandemic projections, weighed down by theongoing pandemic and its legacies, which include
higher debt loads and damage to many of thedrivers of potential output. The recovery in small,tourism-dependent economies is expected to beparticularly weak as some travel restrictions willremain in place until the pandemic is brought
under control. The pace of vaccine rollout varies
across countries, with low-income countries
lagging considerably. The recovery is expected to
be strongest in East Asia and the Pacific,
primarily due to strength in China. In SouthAsia, India’s recovery is being hampered by thelargest outbreak of any country since thebeginning of the pandemic. In the Middle Eastand North Africa and Latin America and the
Caribbean, the pace of growth in 2021 is
expected to be less than the magnitude of thecontraction in 2020, while the tepid recovery in
Sub-Saharan Africa will make little progress inxvii

reversing the increase in extreme poverty causedby the pandemic. In most regions, risks to theoutlook are tilted to the downside. All regions
remain vulnerable to renewed outbreaks of
COVID-19, which could feature variant strains of
the virus; financial stress amplified by elevateddebt levels; deeper-than-expected scarring fromthe pandemic; and rising social unrest, potentiallytriggered by rising food prices.
This edition of Global Economic Prospects also
includes analytical chapters on policy options for
reducing trade costs, so that trade can once again
become an engine of growth, and on prospects for
inflation as an exceptionally fast global rebound isassociated with growing price pressures.
High Trade Costs: Causes and Remedies. As theglobal economy rebounds from the COVID-19induced global recession, the accompanying
strength in global trade offers an opportunity tojumpstart the recovery in EMDEs. Loweringcross-border trade costs could help revive trade
growth. Trade costs are high: on average, they
double the cost of internationally traded goods
over domestic goods. Tariffs account for only
one-fourteenth of average trade costs; the bulk oftrade costs are incurred in shipping and logistics
as well as cumbersome trade procedures andprocesses at and behind the border. Despite adecline since 1995, trade costs remain almost onehalf higher in EMDEs than in advanced
economies; about one-third of the gap may be
accounted for by higher shipping and logistics
costs and another one-third by trade policy. A
comprehensive reform package to lower trade
costs would include trade facilitation measures;
deeper trade liberalization; efforts to streamline
trade processes and clearance requirements; bettertransport infrastructure; more competition inxviii

domestic logistics, retail, and wholesale trade; andless corruption. Some of these measures could
yield large dividends: Among the worst-performing EMDEs, a hypothetical reform package toimprove logistics performance, maritime connectivity, and border processes to those of the bestperforming EMDEs is estimated to halve trade
costs.
Emerging Inflation Pressures: Cause for Alarm?
After declining in the first half of 2020, global
inflation has rebounded quickly on recovering
activity. While global inflation is likely tocontinue rising in the remainder of this year,
inflation is expected to remain within target bands
in most inflation-targeting countries. Among
EMDEs where recent price pressures may raise
inflation above their target ranges, they may not
warrant a monetary policy response—provided
they are temporary and inflation expectations
remain well-anchored. However, higher inflation
may complicate the policy choices of EMDEs thatare in danger of persistently breaching theirinflation targets while also relying on expansionary policies to ensure a durable recovery. Measures
to strengthen central bank credibility can help
anchor inflation expectations in these economies.
Unless risks from record-high debt are addressed,
EMDEs remain vulnerable to financial market
stress should investor risk sentiment deteriorate asa result of actual or perceived inflation pressuresin advanced economies. Low-income countries
are likely to experience rising aggregate and foodprice inflation in the remainder of this year,
exacerbating food insecurity and threating toincrease poverty. Attempts to control food prices
through price subsidies in many countries, or there-emergence of protectionist policies could drive
global prices higher and prove to be self-defeating.

Abbreviations
AE
CA
CAPB
CE
CEMAC
CEPR
CFA
CPI
EAP
ECA
ECB
EE
EMBI
EMDE
EU
FAO
FAVAR
FDI
FSIN
G7
GCC
GDP
GEP
GFC
GNFS
GRID
IDA
ILO
IMF
LAC
LIC
MNA/MENA
MIC
NBER
OECD
OPEC
OPEC+
PMI
PPP
RHS

advanced economy
Central Asia
cyclically-adjusted primary balanceCentral Europe
Central African Economic and Monetary Union
Center for Economic and Policy Research
Financial Community of Africa
consumer price index
East Asia and Pacific
Europe and Central Asia
European Central Bank
Eastern Europe
Emerging Market Bond Index
emerging market and developing economy
European Union
Food and Agriculture Organization of the United Nations
factor-augmented vector autoregression
foreign direct investment
Food Security Information Network
Group of Seven: Canada, France, Germany, Italy, Japan, the United
Kingdom, and the United States
Gulf Cooperation Council
gross domestic product
Global Economic Prospects
global financial crisis
goods and nonfactor services
green, resilient, and inclusive development
International Development Association
International Labour Organization
International Monetary Fund
Latin America and the Caribbean
low-income country
Middle East and North Africa
middle-income country
National Bureau of Economic Research
Organisation for Economic Co-operation and Development
Organization of the Petroleum Exporting Countries
OPEC and Azerbaijan, Bahrain, Brunei Darussalam, Kazakhstan, Malaysia,
Mexico, Oman, Russian Federation, Sudan, and South Sudan
Purchasing Managers’ Indexpurchasing power parity
right-hand scale

xix

RTA
SAR
SCC
SDG
SSA
TFP
UN
UNCTAD
WAEMU
WBK
WFP

xx

regional trade agreement
South Asia
South Caucasus
Sustainable Development Goal
Sub-Saharan Africa
total factor productivity
United Nations
United Nations Conference on Trade and Development
West African Economic and Monetary Union
Western Balkans
World Food Programme

CHAPTER 1

GLOBAL OUTLOOKG LO BAL EC O NO MIC P ROS P EC TS | J U NE 2021

CHAPTER 1

The global economy is set to expand 5.6 percent in 2021—its strongest post-recession pace in 80 years. This
recovery is uneven and largely reflects sharp rebounds in some major economies—most notably the UnitedStates, owing to substantial fiscal support—amid highly unequal vaccine access. In many emerging market anddeveloping economies (EMDEs), elevated COVID-19 caseloads, obstacles to vaccination, and a partial
withdrawal of macroeconomic support are offsetting some of the benefits of strengthening external demand andelevated commodity prices. By 2022, global output will remain about 2 percent below pre-pandemic
projections, and per capita income losses incurred last year will not be fully unwound in about two-thirds of
EMDEs. The global outlook remains subject to significant downside risks, which include the possibility of large
COVID-19 waves in the context of new virus variants and financial stress amid high EMDE debt levels.
Controlling the pandemic at the global level will require more equitable vaccine distribution, especially for lowincome countries. The legacies of the pandemic exacerbate the challenges facing policy makers as they balance theneed to support the recovery while safeguarding price stability and fiscal sustainability. As the recovery becomes
more entrenched, policy makers also need to continue efforts toward promoting growth-enhancing reforms andsteering their economies onto a green, resilient, and inclusive development path.

Summary
Following a 3.5 percent contraction caused by the
COVID-19 pandemic in 2020, global economic
activity has gained significant momentum;
however, it remains well below pre-pandemic
projections (figure 1.1.A). Moreover, the recovery
is uneven, passing over many poorer countries,
and there is considerable uncertainty about its
durability.
The ongoing pandemic continues to shape thepath for global economic activity, with severe
outbreaks continuing to weigh on growth in many
countries. The most recent wave of COVID-19 is
now centered in some emerging market anddeveloping economies (EMDEs), where moretransmissible and virulent strains are spreading
and where vaccine access remains limited (figure
1.1.B). Vaccination remains especially feeble in
low-income countries (LICs). In contrast,
advanced economies have generally seen substantial vaccination progress, which has helped
limit the spread of COVID-19.
Amid continued vaccination, economic activity is
firming across major advanced economies—mostnotably in the United States, where the recovery is
being powered by substantial fiscal support.

Note: This chapter was prepared by Carlos Arteta, Justin-Damien
Guénette, Patrick Kirby, and Collette Wheeler, with contributions
from Lucia Quaglietti, Sergiy Kasyanenko, Gene Kindberg-Hanlon,
Peter Nagle, Cedric Okou, and Ekaterine Vashakmadze.

Growth in China remains solid but has moderated
as authorities have shifted their focus frombuttressing activity to reducing financial stability
risks. Many other countries, primarily EMDEs,
are experiencing subdued pickups alongside surges
of COVID-19 cases, even if recent waves ofinfections appear to be less disruptive to economic
activity than previous ones. Recoveries in fragile
and conflict-affected LICs are particularly weak, as
the pandemic has exacerbated underlying
challenges. Whereas global manufacturing activity
has firmed, with industrial production surpassing
its pre-pandemic level, services activity—especiallytravel and tourism—remains soft.
Global financial conditions have tightenedsomewhat, partly reflecting a rise in U.S. bondyields amid increased inflation pressures.
Nevertheless, they remain generally supportive,reflecting
continued
extraordinary
policyaccommodation by major central banks.
Commodity prices have increased markedly,
owing to the improving global outlook as well as
commodity-specific supply factors. The recovery
in global activity and in commodity prices iscontributing to an increase in inflation, especiallyin some EMDEs that have experienced currency
depreciation.
Against this backdrop, global output growth isprojected to strengthen to 5.6 percent in 2021—
its strongest post-recession pace in 80 years (figure
1.1.C). The recovery is underpinned by steady but
highly uneven global vaccination and theassociated gradual relaxation of pandemic-control

3

4

CHAPTER 1

G LO BAL EC O NO MIC P ROS P EC TS | J U NE 2021

Percentage point
differences fromJanuary 2021 projections

TABLE 1.1 Real GDP1
(Percent change from previous year)
World
Advanced economies
United States
Euro area
Japan
Emerging market and developing economies
East Asia and Pacific
China
Indonesia
ThailandEurope and Central Asia
Russian Federation
TurkeyPolandLatin America and the Caribbean
BrazilMexicoArgentina
Middle East and North Africa
Saudi Arabia
Iran, Islamic Rep. 3
Egypt, Arab Rep. 2
South Asia
India 3
Pakistan 2
Bangladesh 2
Sub-Saharan Africa
NigeriaSouth Africa
AngolaMemorandum items:
Real GDP1
High-income countries

2018

2019

2020e

2021f

2022f

2023f

2021f

2022f

3.2
2.3
3.0
1.9
0.6
4.6
6.5
6.8
5.2
4.2
3.5
2.8
3.0
5.4
1.8
1.8
2.2
-2.6
0.6
2.4
-6.0
5.3
6.4
6.5
5.5
7.9
2.7
1.9
0.8
-2.0

2.5
1.6
2.2
1.3
0.0
3.8
5.8
6.0
5.0
2.3
2.7
2.0
0.9
4.7
0.9
1.4
-0.2
-2.1
0.6
0.3
-6.8
5.6
4.4
4.0
2.1
8.2
2.5
2.2
0.2
-0.6

-3.5
-4.7
-3.5
-6.6
-4.7
-1.7
1.2
2.3
-2.1
-6.1
-2.1
-3.0
1.8
-2.7
-6.5
-4.1
-8.3
-9.9
-3.9
-4.1
1.7
3.6
-5.4
-7.3
-0.5
2.4
-2.4
-1.8
-7.0
-5.2

5.6
5.4
6.8
4.2
2.9
6.0
7.7
8.5
4.4
2.2
3.9
3.2
5.0
3.8
5.2
4.5
5.0
6.4
2.4
2.4
2.1
2.3
6.8
8.3
1.3
3.6
2.8
1.8
3.5
0.5

4.3
4.0
4.2
4.4
2.6
4.7
5.3
5.4
5.0
5.1
3.9
3.2
4.5
4.5
2.9
2.5
3.0
1.7
3.5
3.3
2.2
4.5
6.8
7.5
2.0
5.1
3.3
2.1
2.1
3.3

3.1
2.2
2.3
2.4
1.0
4.4
5.2
5.3
5.1
4.3
3.5
2.3
4.5
3.9
2.5
2.3
2.0
1.9
3.2
3.2
2.3
5.5
5.2
6.5
3.4
6.2
3.8
2.4
1.5
3.5

1.5
2.1
3.3
0.6
0.4
0.8
0.3
0.6
0.0
-1.8
0.6
0.6
0.5
0.3
1.4
1.5
1.3
1.5
0.3
0.4
0.6
-0.4
3.6
2.9
0.8
2.0
0.0
0.7
0.2
-0.4

0.5
0.5
0.9
0.4
0.3
0.4
0.1
0.2
0.2
0.4
0.1
0.2
-0.5
0.2
0.1
0.0
0.4
-0.2
0.3
1.1
0.5
-1.3
3.0
2.3
0.0
1.7
-0.2
0.3
0.4
-0.2

2.3

1.6

-4.7

5.3

4.0

2.2

2.1

0.5

Developing countries

4.7

3.9

-1.4

6.3

4.8

4.5

0.8

0.4

EMDEs excluding China

3.2

2.4

-4.3

4.4

4.2

3.7

1.0

0.6

Commodity-exporting EMDEs

2.0

1.8

-4.0

3.6

3.3

3.1

0.6

0.0

Commodity-importing EMDEs

6.0

4.9

-0.6

7.3

5.4

5.0

1.0

0.6

Commodity-importing EMDEs excluding China
Low-income countries

4.9
4.7

3.2
4.3

-4.7
0.7

5.4
2.9

5.3
4.7

4.5
5.6

1.6
-0.5

1.2
-0.7

BRICS

5.8

4.9

-0.3

7.5

5.2

4.7

1.1

0.6

World (PPP weights) 4

3.6

2.8

-3.2

5.7

4.5

3.5

1.4

0.6

4.2

1.2

-8.3

8.3

6.3

4.4

3.3

1.2

29.4
1.7

-10.2
-4.2

-32.8
3.0

50.3
22.5

0.0
-2.5

0.9
-2.7

42.2
20.1

-13.6
-3.8

World trade volume 5
Commodity prices 6
Oil priceNon-energy commodity price index

Source: World Bank.
1. Headline aggregate growth rates are calculated using GDP weights at average 2010-19 prices and market exchange rates. The aggregate growth rates may differ from the previously
published numbers that were calculated using GDP weights at average 2010 prices and market exchange rates.
2. GDP growth rates are on a fiscal year basis. Aggregates that include these countries are calculated using data compiled on a calendar year basis. Pakistan's growth rates are based on
GDP at factor cost. The column labeled 2019 refers to FY2018/19.
3. GDP growth rates are on a fiscal year basis. Aggregates that include these countries are calculated using data compiled on a calendar year basis. The column labeled 2018 refers to
FY2018/19.
4. World growth rates are calculated using average 2010-19 purchasing power parity (PPP) weights, which attribute a greater share of global GDP to emerging market and developing
economies (EMDEs) than market exchange rates.
5. World trade volume of goods and nonfactor services.
6. Oil price is the simple average of Brent, Dubai, and West Texas Intermediate prices. The non-energy index is the weighted average of 39 commodity prices (7 metals, 5 fertilizers, 27
agricultural commodities). For additional details, please see https://www.worldbank.org/commodities.
Note: e = estimate; f = forecast. World Bank forecasts are frequently updated based on new information. Consequently, projections presented here may differ from those contained in other
World Bank documents, even if basic assessments of countries’ prospects do not differ at any given date. Country classifications and lists of EMDEs are presented in table 1.2. BRICS
include: Brazil, the Russian Federation, India, China, and South Africa. Due to lack of reliable data of adequate quality, the World Bank is currently not publishing economic output, income, or
growth data for Turkmenistan and República Bolivariana de Venezuela. Turkmenistan and República Bolivariana de Venezuela are excluded from cross-country macroeconomic aggregates.

G LO BAL EC O NO MIC P ROS P EC TS | J U NE 2021

B. Distribution of COVID-19 casesand vaccine doses from mid-April to
mid-May
Percent of population
Percent of population
Advanced economies EMDEs
6
20
4
10
2
0

0
Estimated
COVID-19 cases

Vaccine doses(RHS)

C. Global recoveries after recessions

D. Contributions to global growth

E. Forecast revisions to global growthin 2021, by vaccination progress

F. Share of EMDEs exceeding preglobal-recession peaks in per capita
output after 2 years

Percentage points
3

Percent
100

Above-median vaccination
Below-median vaccination

75

2

50
1
25
0

World

AEs

EMDEs

2020

-1

2009

0

1991

Aggregate EMDE growth is forecast to reach 6
percent in 2021, as the effects of the pandemic
gradually wane and as EMDEs benefit fromelevated commodity prices and improving external
demand. Nevertheless, the strength of the reboundthis year mainly reflects robust pickups in a few
large economies. In many other EMDEs,
recoveries are expected to be dampened byelevated COVID-19 caseloads and obstacles tovaccine procurement and uptake, as well as by apartial withdrawal of monetary and, especially,
fiscal support (figure 1.2.A). Aggregate EMDE
growth is projected to moderate to 4.7 percent
next year, owing to the continued unwinding offiscal support and subdued investment, leaving
EMDE output 4.1 percent below pre-pandemic
projections in 2022. Among LICs, growth is

A. Deviation of output frompre-pandemic projections

1982

In advanced economies, the rebound is expectedto accelerate in the second half of 2021 as abroader set of economies pursue widespread
vaccination and gradually reopen, with growthforecast to reach 5.4 percent this year—its fastest
pace in nearly five decades. Growth is projected tomoderate to 4 percent in 2022, partly as fiscal
support in the United States begins to recedeabsent additional legislation.

Global output is rebounding but remains below pre-pandemic projections,with more subdued recoveries in poorer countries. Vaccination has helped
limit the spread of the virus, but progress is highly unequal andconcentrated in advanced economies. Compared to previous global
recoveries, the current cycle is strong but uneven, and primarily reflects
rebounds in some major economies. With the pandemic and limited
vaccination in many emerging market and developing economies (EMDEs)
contributing to downward revisions to growth, per capita income in a
majority of EMDEs is expected to remain below pre-pandemic peaks for an
extended period.

1975

The recovery is envisioned to continue into 2022,with global growth moderating to 4.3 percent.
Still, by 2022, global GDP is expected to remain
1.8 percent below pre-pandemic projections.
Compared to recoveries from previous global
recessions, the current cycle is notably uneven,with per capita GDP in many EMDEs remaining
below pre-pandemic peaks for an extended period(figure 1.1.F).

FIGURE 1.1 Global prospects

1945-46

measures in many countries, as well as risingconfidence. A substantial share of this rebound isdue to major economies, with many EMDEs
lagging behind (figure 1.1.D). The United States
and China are each expected to contribute over
one-quarter of global growth in 2021, with the
U.S. contribution nearly triple its 2015-19
average. Vaccination progress is a key determinantof near-term forecast revisions (figure 1.1.E).
Despite the strong pickup, the level of global GDP
in 2021 is expected to be 3.2 percent below prepandemic projections.

5

CHAPTER 1

Sources: Bolt et al. (2018); Kose, Sugawara, and Terrones (2020); Our World in Data (database);
World Bank.
Note: AEs = advanced economies; EMDEs = emerging market and developing economies; LICs =low-income countries. Unless otherwise denoted, aggregates are calculated using real U.S. dollar
GDP weights at average 2010-19 prices and market exchange rates.
A. Figure shows percent deviation between the levels of June 2021 and January 2020 baseline WorldBank projections. Shaded area indicates forecasts.
B. Figure shows the one-month accumulation of COVID-19 cases in AEs and EMDEs over April 17May 17, 2021, as estimated by the Institute for Health Metrics and Evaluation (IHME), andvaccinations as a share of the population. Sample includes 36 advanced economies and 120 EMDEs.
C. Lines show global recessions, with “t” as their final year. Data for 2021-23 used in the “2020”
episode are forecasts.
D. Figure shows contributions to global growth forecast for 2021 and 2022 compared to averagecontributions to growth in 2015-2019 period. Shaded area indicates forecasts.
E. GDP-weighted forecast revisions for all countries above and below each aggregate’s median shareof population that has received at least one COVID-19 vaccine dose as of June 1, 2021. Sample
includes 36 advanced economies and 132 EMDEs.
F. Data for 2021-22 used in the “2020” episode are baseline forecasts.

6

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G LO BAL EC O NO MIC P ROS P EC TS | J U NE 2021

FIGURE 1.2 Global risks and policy challenges
In many emerging market and developing economies (EMDEs), the recovery will be constrained by elevated COVID-19 caseloads, obstacles tovaccination, and a partial withdrawal of macroeconomic support. In many
EMDEs, the pandemic has slowed or reversed progress at per capita income catch-up with advanced economies. Inflation is expected to exceed
targets in about half of inflation-targeting EMDEs, which could trigger monetary tightening and potentially result in financial stress. Bolstering a green,
resilient, and inclusive recovery will necessitate the efficient use of historic
increases in debt, the promotion of investments in education and environmental sustainability, and the reduction of trade costs.
A. Fiscal and monetary policy stancein 2021B. Per capita income growth relative
to advanced economies

Percent of EMDEs
Tightening
100

Percentage points
4

Unchanged

Loosening2021-23

2010-19

2
75

0
50

-2
25

-4
EMDEs EMDEs
excl.
China

0
Fiscal stance

Monetary policy rate

LICs

FragileLICs

Small
statesC. Forecast for EMDE inflation

D. Inefficiencies in public spending

Percent
8

Percent, higher values indicate lower efficiency
80

Median inflation target

60
6

40
20

4

2019

2020

F. Trade costs and tariff rates

Percent
80

Percent150

60
40

Trade costs

Percent
15

Tariffs (RHS)

100

10

50

5

0

0

20
0
EnergyNon-energy

Advanced economies

Notwithstanding these projected recoveries, thepandemic has had a devastating effect on percapita income growth, poverty, and inequality,
which will linger for a protracted period. Although
per capita income growth in EMDEs is projected
to be 4.9 percent this year, it will be essentiallyzero in LICs. As a result, per capita income catchup with advanced economies could slow or evenreverse in many poorer countries (figure 1.2.B).
Moreover, per capita income losses incurred in2020 will not be fully unwound by 2022 in about
two-thirds of EMDEs, including 75 percent offragile and conflict-affected LICs. By the end of
this year, it is expected that about 100 million
people across EMDEs will have fallen back into
extreme poverty. The pandemic’s impact onpoverty could reverberate for a prolonged period
due to its scarring effects on long-term growthprospects. The pandemic has also exacerbatedinequality as it has disproportionately affectedvulnerable groups—including women, children,and unskilled and informal workers.

Infrastructure

E. Global greenhouse gas emissions
Electricity and heatTransport
Other energy
Agriculture
Industry
Waste

LICs

AEs

LICs

Education

2021f

EMDEs

0

EMDEs

AEs

0
2

expected to pick up to an average of 3.8 percent in
2021-22—well below the average pace of 5.1
percent in the 2010-19 period, and leaving the2022 level of output 4.9 percent below prepandemic projections.

EMDEs

Sources: Comtrade (database); Consensus Economics; ESCAP-World Bank Trade Cost Database;
Haver Analytics; International Monetary Fund; World Bank; World Resources Institute.
Note: AEs = advanced economies; EMDEs = emerging market and developing economies; LICs =low-income countries; Fragile LICs = fragile and conflict-affected LICs.
A. The threshold for fiscal loosening/tightening is a fiscal impulse of +/- 0.5 percentage point ofpotential GDP. Fiscal impulse is the negative change in the cyclically-adjusted primary balance fromthe previous year. Monetary policy stance shows whether countries have had net policy rate hikes/
cuts this year. Sample includes 30 EMDEs for fiscal balance and 70 EMDEs for monetary policy rate.
B. Relative per capita income growth is computed as a difference in per capita GDP growth between
respective EMDE groups and advanced economies. For more information on “Small states,” see:https://www.worldbank.org/en/country/smallstates/overview.
C. Based on median inflation in 125 EMDEs and inflation target in 30 inflation-targeting EMDEs. 2021
EMDE inflation forecast described in chapter 4. Vertical line indicates 16-84 confidence bands.
D. Figure shows median efficiency gap: The difference between a country's spending efficiency andthat of best performers. Yellow whiskers show interquartile ranges. Sample includes 34 advanced
economies, 139 EMDEs, and 24 LICs. See figure 1.23.E notes for more detail.
E.F. Data are for 2018.
F. Blue bars show average trade costs expressed as ad valorem (tariff) equivalent of the value of
traded goods. Red bars show average tariffs for all products. Trade costs aggregated using bilateralcountry export shares. Yellow whiskers show interquartile ranges.

Moreover, the global outlook is clouded byuncertainty and subject to various risks (box 1.1).
The continued spread of COVID-19 shows that
repeated outbreaks are still possible, especially inlight of the emergence of new variants that are
more virulent, deadly, and resistant to vaccines.
Elevated debt levels make the financial systemvulnerable to a sudden increase in interest rates,
which could stem from a rise in risk aversion,
inflation, or expectations of faster monetary
tightening. A spike in bankruptcies could damage
the banking system, restrict the flow of credit, andtrigger credit crunches.
The near- and longer-term consequences of the
COVID-19 crisis pose enormous policy
challenges. The immediate priority continues tobe pandemic control, including overcoming
obstacles in procuring and distributing vaccines.
International cooperation is needed to help ensure
timely and equitable vaccine distribution—

G LO BAL EC O NO MIC P ROS P EC TS | J U NE 2021

particularly in LICs, where inoculation continues
to be very slow. As the pandemic is brought undercontrol, policy actions will also be needed toaddress its adverse legacies, which will requirebalancing competing priorities.
In many economies, central banks will need tocarefully weigh the continued weakness ofdomestic demand against near-term inflationpressures. Model-based forecasts and inflation
expectations point to an increase in inflation in
2021 that will exceed target ranges in about onehalf of inflation-targeting EMDEs (chapter 4;
figure 1.2.C). Although this may not warrant an
aggressive policy response, additional inflationpressure across EMDEs may risk de-anchoring
inflation expectations and could trigger monetary
tightening despite subdued recoveries, which insome cases could also result in financial stress.
Similarly, many EMDEs will need to be careful toavoid a premature withdrawal of fiscal support,
while still keeping a steady eye on medium-term
debt sustainability. Given the historic increase insovereign debt, it will be essential to improve theefficiency of public spending (figure 1.2.D).
Strengthening domestic revenue mobilization andmedium-term fiscal frameworks can help widen
fiscal space and bolster policy credibility. Global
cooperation, including private sector participation,is needed to provide debt relief to the world’s
poorest countries and fund the investments
needed to boost growth and lower greenhouse gas
emissions (figure 1.2.E).
Notwithstanding the expected near-term recovery,
EMDE output is likely to remain below its prepandemic trend for a prolonged period, as many
fundamental drivers of growth have been scarredby the pandemic. A comprehensive set of policies
will be required to promote a strong recovery thatmitigates inequality and enhances environmental
sustainability, ultimately putting economies on apath of green, resilient, and inclusive development(GRID). For example, labor market reforms andimproved social safety nets can bolster laborproductivity by facilitating the movement of labor
toward high-growth sectors while protecting
vulnerable groups. Productivity can also beboosted by efforts to increase access to digital

CHAPTER 1

connectivity and reduce trade costs, which areparticularly elevated in EMDEs (figure 1.2.F).
Increasing investments in learning infrastructureand education will also be required to boost
human capital and arrest recent declines inassociated budgets, while expanding green
investment can enhance climate resilience.

Global context
COVID-19 continues to spread, particularly inmany emerging market and developing economies(EMDEs) amid unequal vaccine deployment.
Although world trade is beneﬁting from the global
recovery, it is being constrained by supply bottlenecks
and travel restrictions. Financial conditions, whilestill benign, have tightened somewhat as global yields
have risen due in part to higher inﬂation
expectations. Almost all commodity prices have been
boosted by the global recovery, with some prices
further lifted by supply factors.
Pandemic developments
The pandemic continues to exact a heavy toll,particularly across EMDEs (figure 1.3.A). Since
COVID-19 started to spread, it has infected atleast 160 million people and caused more than 3
million deaths. Hundreds of thousands of newcases are being reported every day, and thenumber of unreported cases is estimated to be
substantial, particularly in South Asia (figure
1.3.B; Bhattacharyya et al. 2020). Global
outbreaks of the virus have come in several waves,each cresting at a higher daily infection rate thanthe one before. Recent outbreaks havedisproportionately affected India and, to a lesser
extent, some other large EMDEs such as Brazil.
Vaccination campaigns are gathering pace in many
advanced economies and a number of EMDEs,
with about 9 percent of the global population
having received at least one vaccine dose.
Nevertheless, this average conceals enormous
regional and income disparities—especially thepaltry rate of vaccination in the poorest countries.
Countries that have administered vaccines to agreater share of their population are seeing a far
slower accumulation of caseloads than the sizable
share of EMDEs that have so far administered7

8

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G LO BAL EC O NO MIC P ROS P EC TS | J U NE 2021

FIGURE 1.3 Pandemic developments
The pandemic has continued to spread worldwide, and particularly inemerging market and developing economies (EMDEs). The number ofconfirmed cases is lower than the estimated number of actual cases,
particularly in South Asia. Countries where vaccination campaigns areproceeding quickly have generally seen new cases of COVID-19 fall to alow level. These are mostly advanced economies, as most EMDEs have so
far administered only a limited number of shots, and low-income countries
have scarcely begun.
A. Evolution of the pandemic

B. Confirmed versus estimated
COVID-19 cases

New daily cases, thousands
1,000
Advanced economies
800
EMDEs
World
600

Percent of population
Confirmed

0.3

Estimated
0.2

400
200

0.1

May-21

Jan-21

Mar-21

Oct-20Nov-20Jun-20Aug-20May-20Jan-20Mar-200
0.0
SAR LAC MNA ECA SSA AEs EAP

C. Daily new COVID-19 cases,by vaccination progress

D. Distribution of new COVID-19 casesand vaccine doses from mid-April to
mid-May

Index, 100 = January 1, 2021
400
Above-average vaccination

Percent of population
Percent of population
Advanced economies EMDEs
6
20

New variants that were originally identified in
Brazil, India, South Africa, and the United
Kingdom are now circulating globally. There isevidence that these new strains may spread moreeasily and cause more severe disease (Davies et al.
2021). Some of the strains also appear to beresistant to the immune responses triggered by aprevious infection or by the current set of vaccines(Wang et al. 2021). All countries remain vulnerable to renewed outbreaks so long as the virus
continues to circulate in some areas amid unequal
global vaccine coverage (Çakmaklı et al. 2021).
Despite continued waves of infection, the impactof the virus and associated lockdown measures on
economic activity appears to be diminishing inmost countries. Over time, firms and households
have adjusted their behavior to mitigate
disruptions and shift activity to less-affected
sectors (ECB 2021). In addition, compliance withlockdown measures appears to have waned
somewhat over time (Goldstein, Yeyati, andSartorio 2021).

Below-average vaccination
300

4

200

2

100

0

10

0
Jan-21 Feb-21 Mar-21 Apr-21 May-21

0
Estimated
COVID-19 cases

Vaccine doses(RHS)

Sources: Johns Hopkins University (database); Our World in Data (database); World Bank.
Note: AEs = advanced economies; EMDEs = emerging market and developing economies; EAP =East Asia and Pacific, ECA = Europe and Central Asia, LAC = Latin America and the Caribbean,
MNA = Middle East and North Africa, SAR = South Asia, SSA = Sub-Saharan Africa.
A. Figure shows the seven-day moving average of daily new COVID-19 cases. Sample includes 36
advanced economies and 147 EMDEs. Last observation is May 25, 2021.
B. Bars represent the new COVID-19 confirmed cases, whereas the diamonds represent the COVID19 cases as estimated by the Institute for Health Metrics and Evaluation (IHME). Data retrieved on
May 26, 2021. Last observation available taken for both confirmed and estimated cases. Sample
includes 36 advanced economies, 7 EAP, 23 ECA, 26 LAC, 19 MNA, 7 SAR, and 41 SSA economies.
C. Figure shows the seven-day moving average of daily new COVID-19 cases per million people for
36 advanced economies and 147 EMDEs above and below the global average vaccination rate. Lastobservation is May 25, 2021.
D. Figure shows the one-month accumulation of COVID-19 cases in AEs and EMDEs over April 17May 17, 2021, as estimated by the Institute for Health Metrics and Evaluation (IHME), andvaccinations as a share of the population. Sample size includes 36 advanced economies and 120
EMDEs.

shots to only a small proportion (figure 1.3.C-D).
Coverage in poorer countries remains extremely
limited, but the COVAX initiative and thepotential temporary waiving of intellectual
property protections for COVID-19 vaccines may
contribute to global distribution becoming more
equitable over time.

Global trade
Global trade has continued to rebound; however,the strength of global trade growth is set to bedampened by shifting activity from manufacturing
to the low-trade-intensity domestic services sector
in countries where COVID-19 caseloads havebeen declining. The recovery in global tradestarted earlier and has been stronger than that ofother components of global output, as the
pandemic’s impact on activities requiring face-toface contact initially encouraged a rotation indemand toward the consumption of durable
goods, which have a high trade intensity (figure
1.4.A).
Manufacturing trade is currently being
constrained by supply bottlenecks and strains in
global value chains, which were temporarily
exacerbated by the blockage of the Suez Canal in
March (Ferrantino et al. 2021). Companies haveexperienced a sharp rise in freight rates andlocalized shortages of shipping containers (figure
1.4.B). In order to increase resilience and mitigate
logistical problems, companies have increased
their use of digital technologies and diversified
suppliers and production sites (Saurav et al. 2020).

G LO BAL EC O NO MIC P ROS P EC TS | J U NE 2021

CHAPTER 1

BOX 1.1 What is next? Growth scenarios beyond 2021
Global growth is set to reach 5.6 percent in 2021—the strongest post-recession pace in 80 years. Nonetheless, the recovery is
expected to be highly uneven, and there is substantial uncertainty about the strength and durability of this anticipated upturn
beyond 2021. This box explores two alternative scenarios. In a “Faltering Recovery” scenario, the global economy slows in responseto the possibility of recurring local COVID-19 outbreaks, mounting inflationary pressures, and a sharp tightening of global
financial conditions during the next two years. In contrast, in a “Sustained Expansion” scenario, vaccine-driven COVID-19
containment, re-opening, and ambitious reforms catalyze an even stronger response of private activity and potential output, withpositive global spillovers. These scenarios illustrate that the current signs of recovery may be fleeting and underscore the need forpolicy makers in emerging market and developing economies (EMDEs) to take advantage of present opportunities to put in place
growth-enhancing reforms.

Introduction
Global economic activity is accelerating as the world
emerges from the deepest global recession since WorldWar II (World Bank 2020a). Barring a protracted global
resurgence of COVID-19, the baseline outlook describedin the main text envisages the strongest global recovery
from any of the five global recession in the past 80 years.
However, the recovery is remarkably uneven acrosscountries, as it largely reflects sharp rebounds in somemajor economies, with poorer countries lagging behind. In
addition, there is substantial uncertainty around thebaseline growth trajectory, especially beyond 2021. The
recovery in global activity may not last, as explored in a
“Faltering Recovery” scenario. In this case, growth would
slow starting in 2022 as recurring COVID-19 flareups
would weigh on risk sentiment, while mounting inflationpressures amid elevated macroeconomic vulnerabilities
would trigger a sharp tightening of global financial
conditions (Reinhart and Reinhart 2020). Alternatively, ina “Sustained Expansion” scenario, the rebound could
broaden and become self-sustaining, anchored by
improved confidence, an accelerated pace of technologicalchange, and a renewed push for reforms that boost longerterm productivity in EMDEs (World Bank 2021a; Kose
and Ohnsorge 2021). The global implications of thesescenarios are assessed using a large-scale global semistructural projection model. a

Baseline scenario
In the baseline scenario, global output is set to bounceback strongly, expanding 5.6 percent this year—the fastest

Note: This box was prepared by Justin-Damien Guénette, with
contributions from Alain Kabundi and Takefumi Yamazaki.
a. The scenarios were constructed using the Oxford Economics
Global Economy Model (Oxford Economics 2020), which includes 81
individual country blocks (35 advanced economies and 46 EMDEs),
most of which are available at a quarterly frequency, with behavioral
equations governing domestic economic activity, monetary and ﬁscal
policy, global trade, and commodity prices.

post-recession pace in 80 years—following a 3.5 percent
contraction in 2020. Advanced economies are expected to
grow 5.4 percent in 2021, with substantial fiscal support
and faster-than-expected vaccinations in the United States
adding fuel to the rebound. Growth in EMDEs is also
projected to strengthen, reaching 6 percent in 2021 on theback of improving external demand and elevatedcommodity prices. This baseline outlook is predicatedon the assumption that widespread vaccination allows
advanced economies to achieve effective containment of
the pandemic by the end of the year, while many major
EMDEs are envisaged to substantially reduce local transmission rates. In contrast, slow progress of vaccination
campaigns would allow COVID-19 to disrupt activity tovarying degrees in many other EMDEs, including lowincome countries.
The surge in growth envisaged for 2021 reflects, to varying
degrees, the combination of ongoing macroeconomic
policy support and the release of pent-up demandassociated with the easing of the pandemic. In response to
the COVID-19 shock, central banks have eased monetary
policy forcefully, by cutting policy rates and in many cases
committing to keeping them low for an extended period,
as well as rolling out unconventional policies (figure
B1.1.1.A-B). Fiscal authorities also announced a series oflarge-scale support packages across advanced economies
and, to a lesser extent, EMDEs (figure B1.1.1.C). Moreover, the pandemic and associated lockdown measures
forced households to reduce spending on services involving
personal contact, leading to a sizable accumulation of
personal savings, particularly in advanced economies(figure B1.1.1.D).
Although financial conditions remain benign, they havetightened somewhat as firming activity raises the prospectof stronger inflation and a faster withdrawal of supportive
monetary policies. The ebbing of the pandemic is also
revealing heightened macroeconomic vulnerabilities inmany EMDEs—in particular, high debt burdens andsizable current account and fiscal deficits—leaving many9

G LO BAL EC O NO MIC P ROS P EC TS | J U NE 2021

CHAPTER 1

BOX 1.1 What is next? Growth scenarios beyond 2021 (continued)
FIGURE B1.1.1 Policy support and vulnerabilities
Global economic activity is experiencing an uneven acceleration. Much of the pickup reflects the strengthening of largeadvanced economies driven by substantial macroeconomic policy support and the nascent release of pent-up demand as
pandemic control measures are relaxed. However, this pickup will do little to reverse significant debt and external
vulnerabilities accumulated during the pandemic.
A. Central bank policy rate projections

B. Quantitative easing in advanced
economies and EMDEs since March 2020
Percent
25

C. Fiscal support measures in response
to COVID-19 since January 2020
Percent of GDP
20

20

15

15
10
10
5
5
0
Advanced
economies

0
Advanced economies

EMDEs

World

EMDEs

D. Personal savings

E. EMDE government and private debt

F. EMDE current account and fiscal
balances

Percent of disposable income
24
Baseline
Pre-pandemic projection

Percent of GDP
150

Percent
10

20

2020

2007

2019

120

5

90

0

60

-5

30

-10

2020

2007

Government

PrivateTotal

Current account

SSA

SAR

LAC

0

MNA

World

EAP

EMDEs

ECA

Advanced
economies

SSA

0

SAR

4

LAC

8

MNA

12

EAP

16

ECA

10

Fiscal deficit

Sources: Bank of International Settlements; International Institute of Finance; International Monetary Fund; National accounts; Oxford Economics; World Bank.
Note: EMDEs = emerging market and developing economies; EAP = East Asia and Pacific, ECA = Europe and Central Asia, LAC = Latin America and the Caribbean,
MNA = Middle East and North Africa, SAR = South Asia, SSA = Sub-Saharan Africa.
A. Blue and red lines show average policy rates for 27 advanced economies and 23 EMDEs. Dotted line shows projections as based on Oxford Economics May21_1
Oxford database. Shaded areas show interquartile range.
B. Announced or completed purchases (where no announcement exists) and of sovereign and private sector bonds in percent of nominal GDP as of May 2021. Sample
for EMDEs consists of 17 countries. Sample for advanced economies consists of US, Euro area, Japan, and United Kingdom. Bars shows averages. Orange whiskers
show regional range.
C. Bars show unweighted average of total fiscal support measures in response to COVID-19 pandemic. Sample includes 48 advanced economies and 143 EMDEs.
D. Figure shows average personal savings for 2021 H1 for baseline projection and pre-pandemic baseline approximated by Jan20_1 Oxford Economics database.
Sample includes 27 advanced economies and 17 EMDEs.
E. Aggregates are calculated using real U.S. dollar GDP weights at average 2010-19 prices and market exchange rates, excluding China. Total debt is a sum of
government and private debt. Government debt based on 149 EMDEs and private debt based on 126 EMDEs.
F. Averages across EMDE regions, consisting of 22 EAP (excluding China), 23 ECA, 31 LAC, 16 MNA, 8 SAR, and 46 SSA.

of them exposed to financial market disruptions (figure
1.1.1.E-F).
Beyond 2021, the baseline forecast anticipates amoderation of the global recovery with a continued
divergence between advanced economies and EMDEs.
Advanced economies are expected to continue to recover ata healthy pace, buoyed by reopening amid limited

projected scarring of potential output (Das and Wingender2021). Growth in the United States is forecast to remainstrong, in part due to the likelihood that the Federal
Reserve will keep policy rates near zero through early 2023,
in line with market expectations. In doing so, the Federal
Reserve is assumed to permit a modest overshoot of
inflation above the 2 percent target over the next three
years, consistent with its new Average Inflation TargetingG LO BAL EC O NO MIC P ROS P EC TS | J U NE 2021

CHAPTER 1

BOX 1.1 What is next? Growth scenarios beyond 2021 (continued)
regime (Brainard 2021).b In contrast, the pace of recovery
in EMDEs is expected to be subdued and uneven, withgrowth in 2022 and 2023 averaging 4.5 percent—only
modestly above a declining rate of potential output growth(averaging 4 percent over the same period). The factors
weighing on EMDE recoveries include a slow pace ofvaccination and reopening, the withdrawal of macroeconomic support, the stabilization of commodity prices,
and a sluggish rebound in global tourism.

Comparison with recoveries from previous
global recessions
The baseline scenario envisages the fastest recovery fromany of the five global recessions in the past 80 years,
considerably faster than the initial rebound from the global
financial crisis (figure B1.1.2.A-B). The recovery inadvanced economies is projected to be particularlyrobust—their 2021 growth is expected to be nearly twice
as fast as that after the 2009 recession (figure B1.1.2.C). In
contrast, the recovery in EMDEs is expected to be moremodest, with growth in 2021 about one fifth slower thanafter the 2009 recession.
Nevertheless, this global recovery is expected to bemarkedly less broad-based than previous ones. Only half of
all countries are expected to have regained their prepandemic per capita income levels in 2022, two years after
the global recession (figure B1.1.2.D). In contrast, by
2011, after the 2009 global recession induced by the global
financial crisis, two thirds of countries had regained the
pre-recession per capital output levels, a similar share ofcountries as after the average global recession in the 20th
century. The weakness of the recovery is concentrated in
EMDEs: Over 90 percent of advanced economies are
expected to regain their pre-pandemic per capita income
levels in 2022, while only about one third of EMDEs are
expected to do so over that time (figure B1.1.2.E-F).

the experience following the global recession of 2009
(Kose and Ohnsorge 2021). A lingering pandemic, withnew variants causing recurring local resurgences ofinfections, would leave households and businesses wary of
future prospects (Kozlowski 2020; Ilut and Schneider2012). This would keep savings elevated and limit thescope for further improvement in private consumption
and investment.
At the same time, a rapid demand-driven increase in
growth in the United States absent large supply-side
improvement would generate sustained inflation pressuresand potentially cause a de-anchoring of inflation
expectations (Tauber and Van Zandweghe 2020). The
Federal Reserve could have no choice but to respond by
quickly tightening monetary policy, likely triggering a
sharp repricing of risk by financial markets, andexacerbating
alreadyheightened
macroeconomic
vulnerabilities.c The macroeconomic effects of a sharp
tightening of global financial conditions, as well as weakerconsumer and business confidence, would compound the
expected unwinding of global fiscal support. d Growth inadvanced economies would slow sharply from 5.4 percent
in 2021 to 2.6 percent in 2022 and 1.4 percent in 2023
(figure B1.1.3.A).
The slowdown would also be sharp in EMDEs as negative
spillovers via confidence, trade, and commodity pricechannels would reduce private sector activity. e These
countries would experience significant capital outflows in
response to heightened investor risk aversion, leading tosharp currency depreciations, which in turn would worsen
debt burdens and boost inflation. Domestic credit spreads
would significantly widen, triggering a notable rise indefaults, especially in those countries with pre-existingbalance sheet vulnerabilities (figure B1.1.3.B; Arteta et al.

Downside scenario: A Faltering Recovery
The global recovery could falter once policy support iswithdrawn and pent-up demand is exhausted, similar tob. Under average inﬂation targeting, the inﬂation rate is expected to
exceed its target during expansions to compensate for below-target
inﬂation during downturns. The modest overshoot in core PCE inﬂation
envisioned by the Federal Reserve in its March 2021 Summary of
Economic Projections would bring average core PCE inﬂation to 1.9
percent over 2020-23 and to 1.6 percent over 2015-23, still below the 2
percent target. Critically, the projection for U.S. inﬂation assumes thatinﬂation expectations remain anchored and the Phillips Curve—therelationship between inﬂation and the level of excess demand—is nearlyﬂat (Hazell et al. 2020).

c. The Federal Reserve is assumed to begin raising rates while rapidly
tapering its quantitative easing program starting in 2022Q1.
d. In this scenario, ﬁnancial market volatility would spike in 2022Q1
and 2022Q2, with the VIX experiencing a rise on par with the COVID19 crisis due in large part to an unexpected acceleration in the unwindingof U.S. monetary policy stimulus in the face of rising inﬂation
expectations. The sharp rise in global risk aversion is assumed toprecipitate a persistent downward shift in global conﬁdence starting inearly 2022.
e. Major EMDEs are assumed to face signiﬁcant adverse domestic
conﬁdence shocks in addition to negative spillovers from abroad. These
shocks are calibrated to broadly match recent episodes of domestic
economic weakness such as what occurred during the Taper Tantrum(2013Q2) and what happened during the global ﬁnancial crisis forcertain EMDEs.

11

G LO BAL EC O NO MIC P ROS P EC TS | J U NE 2021

CHAPTER 1

BOX 1.1 What is next? Growth scenarios beyond 2021 (continued)
FIGURE B1.1.2 Global recovery in historical context
The baseline forecast envisages the strongest post-recession rebound in global output growth in 80 years. Much of thestrength reflects a remarkably swift recovery in advanced economies, in contrast to the recovery that followed the global
financial crisis. That said, the recovery is expected to be unusually narrow in per capita terms, with only 50 percent ofcountries expected to exceed their pre-recession peaks in 2022. The global recovery is also expected to be markedly
uneven across advanced economies and EMDEs.

0

0

0
2020

25

2009

25

1991

50

25

1982

50

1975

50

1945-46

75

2020

75

2009

75

1991

Percent100

1982

Percent
100

1975

Percent
100

1945-46

F. Share of EMDEs exceeding
pre-recession per capita peaks after
2 years2020

E. Share of advanced economies
exceeding pre-recession per capita
peaks after 2 years

2009

D. Share of countries exceeding
pre-recession per capita peaks after
2 years1991

C. Advanced economy and EMDE output:
2020 vs 20091982

B. Global output per capita recoveries
over history

1975

A. Global output recoveries over history

1945-46

12

Sources: Bolt et al. (2018); Kose, Sugawara, and Terrones (2020); World Bank.
Note: A.-F. Data for 2021-23 used in the “2020” episode are forecasts. GFC = global financial crisis.
A.-B. Lines show global recession episodes. Multiple years are used when the global recession lasted for more than one year.
C. t = 2020 for COVID-19 and t = 2009 for GFC.
D.-F. Dashed yellow line is 50 percent.

2015). f Increased debt servicing costs amid heightened
rollover risks would force governments in many EMDEs,
particularly in countries with limited fiscal space, to cut
consumption and delay investment projects. g

f. The domestic credit spread is calculated as a diﬀerence between the
short-term lending rate and the 10-year government bond yield. Credit
spreads in advanced economies are endogenously determined, whereas in
EMDEs they are set to be consistent with (1) the levels prevailing during
the GFC or (2) the period of rising concerns in anticipation of weakerthan-expected global growth and a no-deal Brexit in 2018.
g. The magnitude of the ﬁscal consolidation shock is calibrated tomatch recent historical episodes of rapid ﬁscal consolidation in major
EMDEs. The degree of ﬁscal consolidation varies across major EMDEs

EMDEs would experience renewed downturns, withgrowth falling sharply from 6.0 percent to 2.9 percent in
2022, well below the 5.1 percent average of the previous
decade (figure B1.1.3.C). Relative to the baseline scenario,
EMDE growth in 2022 and 2023 would be 1.8 and 1.3
percentage point lower, respectively, and the additional
slowdown would cut across all EMDE sub-regions.
Growth in China would remain resilient, averaging nearly
5 percent in 2022 and 2023 as policy makers would beaccording to the size of their ﬁscal sustainability gap based on Kose et al.
(2017). The ﬁscal sustainability gap widened considerably in most
EMDEs in 2020.

G LO BAL EC O NO MIC P ROS P EC TS | J U NE 2021

CHAPTER 1

BOX 1.1 What is next? Growth scenarios beyond 2021 (continued)
FIGURE B1.1.3 Alternative scenarios for global growth
Global growth is expected to pick up strongly in 2021, buttressed by increased but unequal vaccination, policy support, andthe release of pent-up demand. For 2022, growth outcomes will depend on the extent to which the initial rebound cancatalyze a durable recovery in private sector activity and potential output growth. In a “Faltering Recovery” scenario, theglobal recovery may prove short-lived, as recurring local resurgences of the pandemic combined with the de-anchoring of
inflation expectations in the United States lead to a sharp repricing of risk and a tightening of global and especially EMDE
financial conditions. In contrast, in a “Sustained Expansion” scenario, rising global confidence amid brighter pandemic
prospects, an accelerated pace of technological change, and growth-enhancing reforms in EMDEs provide a strong growth
boost through 2023.
A. Advanced economy GDP growth

B. Major EMDE credit spreads

C. EMDE GDP Growth

Percent
8

Percent
12

Percent

Baseline

Scenario Range

Baseline

Faltering Recovery

Baseline

8

Scenario Range

10

6

6

8
4

6

4

4
2

2

2
0

0
2010s

2021

2022

D. World GDP growth
Percent
8

Baseline

0
2021

2023

Scenario Range

2022

2023

2010s

2021

2022

2023

E. Episodes of rising advanced economy
total factor productivity growth

F. EMDE output growth and potential
output growth with reforms

Percent
2.0

Percent
7

1.6

6

6

Growth-enhancing reforms
Potential output (Baseline)
EMDE growth (Baseline)
Scenario range

5

1.2

4
4

0.8

3

0.4

2

2

1

0.0
0
2010s

2021

2022

2023

1983-84 2022-23 2003-04 1999-00 2022-23
Sustained
Baseline
Expansion

0
2021

2022

2023

Sources: Dieppe (2020); Kilic Celik, Kose, and Ohnsorge (2020); Oxford Economics; UN Population Projections; World Bank.
Note: A.C.D. Red bars show average of 2010-2019 GDP growth. Blue bars show baseline data from Global Economic Prospects June 2021 database. Yellow whiskers
indicate the scenario ranges from Oxford Global Economic Model simulations compared to the baseline scenario.
B. Major EMDE countries comprise Argentina, Brazil, China, India, Indonesia, Malaysia, Mexico, Russian Federation, South Africa, and Turkey.
E. TFP is total factor productivity. Advanced economies comprise France, Germany, Italy, Japan, United Kingdom, and United States. Episodes of rising advanced
economy TFP growth are instances when TFP growth accelerated above its historical 1981-2018 average for two consecutive years. The sustained recovery scenario isbased on the acceleration witnessed during the two most recent acceleration episodes of 2003-04 and 1999-00.
F. Potential output estimates and projections are based on a production function approach as described in Kilic Celik, Kose, and Ohnsorge (2020). Sample includes 82
economies (including 30 advanced economies and 52 EMDEs, of which 12 are low-income countries) for 1995-2029. These countries accounted for 95 percent of global
GDP over the past five years. Yellow diamonds show the baseline data from Global Economic Prospects June 2021 database. Green whiskers denote scenario range.

expected to roll out additional policy support measures tocushion the effect of adverse spillovers. Excluding China,
growth in EMDEs would fall more sharply, from 4.4
percent to 1.4 percent in 2022—2.8 percentage points
below the baseline scenario—resulting in nearly zero
growth in per capita terms in that year. The pace ofactivity in EMDEs would barely tick up in 2023 and at 2
percent would still be 1.7 percentage points below thebaseline forecast.

In sum, this scenario would mean that global growthwould slow sharply, by nearly 3 percentage points from
5.6 percent in 2021 to 2.7 percent in 2022, and further to
2.1 percent in 2023 (figure B1.1.3.D). This would leave
the recovery from the COVID-19 pandemic roughly
similar to the anemic recovery that followed the global
financial crisis.

13

14

CHAPTER 1

G LO BAL EC O NO MIC P ROS P EC TS | J U NE 2021

BOX 1.1 What is next? Growth scenarios beyond 2021 (continued)

Upside scenario: A Sustained Expansion
Alternatively, the global recovery could prove more robustand broad-based than expected. For instance, the policysupported surge in global growth in 2021, coupled withfaster and more equitable global vaccination, could
catalyze a self-sustaining period of rapid growth in which
the private sector becomes a powerful engine of growthstarting in 2022. In effect, strong pro-cyclical policy
support would trigger a process of “reverse hysteresis” inwhich a robust cyclical upturn lifts long-run growthprospects (Reifschneider, Wascher, and Wilcox 2013;
Coibion, Gorodnichenko, and Ulate 2017).
In particular, this scenario envisages that technologicaladoption would accelerate, along with rising investment
and labor force participation, causing potential output tostrengthen. Starting in the first quarter of 2022, totalfactor productivity growth in advanced economies would
accelerate to levels similar to those seen during previous
episodes of productivity surges, as corporations deepen
their use of digital technologies and work from homepolicies adopted during the pandemic (figure B1.1.3.E;
Barrero, Bloom, and Davis 2021; McKinsey 2020).
Knowledge spillovers and faster installation of new
productive capital would also raise productivity in othercountries. h At the same time, this scenario assumes that
EMDE policy makers, faced with high levels of sovereign
debt and slowing long-run growth prospects, implement
growth-enhancing reforms, including reforms tostrengthen economic governance, diversify economies
reliant on commodities or tourism, and facilitate thereallocation of resources towards more productive activities(World Bank 2021a). This comprehensive package ofreforms would raise EMDE potential output growth
gradually starting in 2022 (figure B1.1.3.F).
Consumer confidence would surge, anchoring strong
private consumption growth as consumers rapidly draw
down their savings. i At the same time, rising potential

h. TFP spillovers are calibrated using estimates from Coe, Helpman
and Hoﬀmaister (2008) and diﬀerentiated across advanced economies
and EMDEs based on the results of multi-country vector autoregression
models. The installation of new productive capital is also assumed to raise
total factor productivity (World Bank 2018a).
i. The global increase in conﬁdence is modeled using globallycorrelated conﬁdence shocks that simultaneously increase private
consumption and business investment. The magnitude of the shock is
calibrated to raise EMDE growth in 2022 by a similar magnitude to theacceleration in growth that occurred in 2006 (about 0.9 percentage
point).

output and well-anchored inflation expectations would
help keep inflationary pressures in check, allowing
advanced economy central banks to keep monetary policy
accommodative for a prolonged period. In turn, continued
monetary accommodation would support investment andconsumption by alleviating debt service burdens andsupporting asset prices.
Growth in advanced economies would remain near 5
percent in 2022 before slowing to a still strong 3.1 percent
in 2023. The investment- and productivity-driven growthin advanced economy growth would have greater spillovers
to EMDEs, boosting export demand while ensuring that
global financial conditions remain benign (World Bank2017). As a result, EMDEs would experience a robust
expansion, with growth averaging over 5 percent in 2022
and 2023—0.6 percentage point higher on average than in
the baseline scenario. Overall, global growth would benotably stronger, averaging 4.4 percent over 2022-23
compared to 3.7 percent in the baseline scenario (figure
B1.1.4.A-C).

Policy implications
COVID-19 continues to spread across the world, making
pandemic control the top priority for policy makers.
Launching durable economic recoveries will not be
possible until containment is achieved through widespreadand equitable vaccination efforts. Still, there have beenencouraging signs of a solid macroeconomic recovery fromthe deleterious effects of the pandemic in recent months. A
supportive external environment has helped buoy activity:
strengthened external demand has boosted exports of raw
commodities and traded goods, while still-benign global
financial conditions have helped ease the burden of heavy
debt loads among many EMDE governments andcorporates.
Looking beyond 2021, EMDE policy makers can help
realize a Sustained Expansion scenario of the global
economy by decisively implementing growth-enhancing
reforms. The benefits of the ongoing global trade reboundcan be leveraged by reforms that lower trade costs (chapter3), including streamlining trade processes and customs
clearance procedures, lowering tariffs, and implementing
policies that support trade infrastructure and services.
Ambitious reforms to facilitate the transition of labor andcapital to high-growth sectors, strengthen social safety
nets, and fund environmentally sustainable investments
can help entrench a domestically driven green, resilient,and inclusive recovery.

G LO BAL EC O NO MIC P ROS P EC TS | J U NE 2021

CHAPTER 1

BOX 1.1 What is next? Growth scenarios beyond 2021 (continued)
FIGURE B1.1.4 Global recovery scenarios in historical context
From a historical perspective, global activity could follow alternative paths as it recovers from the 2020 recession. In the
Faltering Recovery scenario, the global recovery could lose momentum, with global output evolving broadly in line with therecovery that followed the global financial crisis. Alternatively, in the Sustained Expansion scenario, the post-recession
recovery could be notably stronger.
A. Global output around historical
recessions

B. Advanced economy output aroundhistorical recessions

C. EMDE output around historical
recessions

Sources: Bolt et al. (2018); Kose, Sugawara, and Terrones (2019, 2020); World Bank.
Note: EMDEs = emerging market and developing economies.
A.-C. Sample includes 183 economies, though the sample size varies significantly by year. Past global recessions shading includes 1945-46, 1975, 1982, 1991, and2009 global recession episodes.

As highlighted by the Faltering Recovery scenario,
however, the favorable external environment may not last,and many EMDEs are vulnerable to a sudden shift inexternal conditions. This underscores the need for policy
makers to take full advantage of the currently favorable
external environment to implement reforms that increase
the resilience of financial systems and improve fiscal
sustainability. On the macroprudential front, steps can
include enhancing macroprudential supervision, closely
monitoring systemic risks in the financial system, andincentivizing domestic banks to rebuild capital buffers. At

the same time, fiscal authorities can address investor
concerns about long-run debt sustainability bystrengthening fiscal frameworks, enhancing debt
transparency, and improving debt management by issuinglong-duration debt denominated in local currency. If fiscal
revenues surprise temporarily on the upside, these can beused to replenish depleted fiscal buffers or to fund criticalinvestment and development needs. When combined,
these policies can go a long way in making economies
more resilient to external shocks and less susceptible toepisodes of financial stress.

Price pressures associated with supply bottlenecks
are likely to abate over time as global growthmoderates and shippers expand capacity.

restrictions and reluctance to travel so long as thevirus is not completely under control (figure
1.4.D; UNWTO 2021).

High-frequency data point to a pickup in somecomponents of services trade, such as
telecommunications and financial services (figure
1.4.C). Tourism remains depressed, however, evenin countries that have not experienced major
outbreaks, such as small island economies.
International travel is expected to be constrained
for some time owing to lingering mobility

Trade growth is hampered by high trade costs,
which remain particularly elevated in EMDEs(chapter 3). Trade costs primarily arise fromtransportation expenses and cumbersome customs
procedures, and are likely to have increased further
as a result of protectionist measures, such as tariffs
on U.S.-China trade and export controls on foodand medical products (WTO 2020). In all, global

15

16

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G LO BAL EC O NO MIC P ROS P EC TS | J U NE 2021

FIGURE 1.4 Global trade

Financial markets

The global trade recovery has been boosted by a rotation in demand
toward trade-intensive goods; as the low-trade-intensity domestic services
sector picks up and accounts for a greater share of the economic
recovery, trade momentum is likely to slow. Manufacturing trade is being
constrained by supply bottlenecks amid localized shortages of shipping
containers. Incoming data point to a pickup in some components ofservices trade, such as telecommunications and financial services,whereas tourism activity is expected to remain weak until the virus isbrought under control.
A. Impact of a $1 increase in sectoral
demand on imports

B. Global shipping times and costs

US$4

Index, 50+ = fasterIndex, 100 = January 2020
90 Delivery times
300
Container shipping rates (RHS)
80
250

Services

May-21

Non-durables

Jan-21

DurablesMar-21

50

0Nov-20100

40Jul-2015050Sep-2060

May-201

200

Jan-202

70Mar-203

Total services

40
30

TravelOther
services

20
Business
services

Int. property

Percent of respondents
50

Telecom.

Index, 100 = 2019
150
125
100
75
50
25
0
Fin. services

D. Global survey expectations forinternational tourism to return topre-pandemic levels

Sea transport

C. State of the recovery in global
services trade, by component shareof total

10
0
2021

2022

2023

2024 orlater

Sources: Auboin and Borino (2017); Bems, Johnson, and Yi (2010); Harper Petersen & Co.
(database); Haver Analytics; United Nations World Tourism Organization; World Bank; World Trade
Organization.
A. Figure shows the impact of a $1 increase in demand from a given sector on imports, as estimatedby Bems, Johnson, and Yi (2010).
B. Figure shows the global manufacturing suppliers’ delivery times Purchasing Managers’ Index(PMI) and the Harper Petersen Charter Rates Index (HARPEX) for container shipping rates. PMI data
are inverted by subtracting data from 100; therefore, increasing (decreasing) PMI data indicate faster(slower) delivery times. Container shipping rates are monthly averages of weekly data and reflect
price developments on the charter market for container ships. Dashed lines indicate long term
averages over the period January 1998 – December 2019 for delivery times and February 2018 –December 2019 for container shipping rates. Last observation is May 2021 for delivery times and
May 25, 2021 for container shipping rates.
C. Trade is measured as the average of import and export volumes. Sample includes 12 advanced
economies and 12 EMDEs in March 2021. The height of the bars shows latest data relative to thecorresponding month of 2019 whereas the width of bars shows the pre-pandemic share of eachcomponent in total services trade. Telecom. = Telecommunications, computer, and information
services; Fin. services = financial services; Int. property = charges for the use of intellectual property.
Dashed orange line indicates the level of trade in total services as compared to the average of 2019.
D. Figure shows the expectations for international tourism to return to 2019 levels according to a
global survey conducted by UNWTO in January 2021.

trade is forecast to grow 8.3 percent this year and6.3 percent in 2022, reflecting firming global
output and investment, but also the diminishingtrade intensity of the global recovery.

Financial conditions have tightened but remain
generally supportive. Global borrowing costs haveincreased as expectations of stronger future growthand higher inflation have pushed up long-termyields on government bonds. Thus far, thesedevelopments have been substantially lessdisruptive to global and EMDE financial
conditions than the 2013 taper tantrum, when
expectations of tighter U.S. monetary policy
triggered volatility in global financial markets.
Global corporate borrowing costs have also risen,
but spreads have been stable and stock market
valuations in most regions are still close to multiyear highs. Business bankruptcies, which had been
limited considering the depth of the global
recession, have picked up in some industries andcountries but remain below pre-pandemic levels
amid easy access to credit and the extension ofsome COVID-19 relief measures. The extent of
post-pandemic credit losses may be limited by thefact that crisis-hit sectors account for a small shareof total non-financial-sector debt (Mojon, Rees,
and Schimieder 2021).
EMDE sovereign debt yields have risen slightly
more than U.S. borrowing costs, particularly forsome more-indebted countries, resulting inmodest increases in spreads (figure 1.5.A-B).
Portfolio flows to EMDEs have lost momentum(figure 1.5.C). Some EMDEs have experienced
currency depreciation, contributing to abovetarget inflation (figure 1.5.D). As has been thecase in the past, currency depreciation has led
some EMDE central banks to start removing
monetary policy accommodation. Large output
gaps in many countries may limit the extent of
EMDE policy tightening in the near future.
Remittances to many countries have been resilient.
Strong activity in the U.S. construction sector, forexample, has supported flows to many countries in
Latin America and the Caribbean (LAC). The
extent of this resilience may be overstated,
however, by mobility constraints that encourage ashift from informal methods of transporting
money across borders toward wire transfers, which
are more easily measured (Dinarte et al. 2021).

G LO BAL EC O NO MIC P ROS P EC TS | J U NE 2021

17

CHAPTER 1

The recovery of foreign direct investment (FDI)
flows to EMDEs is largely attributable toinvestors' optimism about prospects in China anda few large foreign acquisitions in India. FDI flows
to other EMDEs remain subdued due to concerns
about the course of the pandemic and uncertainty
about growth prospects.

FIGURE 1.5 Global financeCommodity markets

A. Cumulative change in 10-year
EMDE government bond yields

B. Response of EMDE credit spreads
to rising U.S. yields

Commodity prices have seen a sharp rise in 2021,
with many now well above their pre-pandemic
levels (ﬁgure 1.6.A; World Bank 2021b). Oilprices have rallied markedly, averaging $60/bbl in
2021 so far. Prices have been supported by agradual ﬁrming in demand and continued
production restraint among OPEC+, even if thegroup is gradually reducing the extent of its
production cuts as the market recovers. However,the pickup in oil prices has been partly dampened
by uncertainty regarding the evolution of thepandemic and its potential impact on future oil
demand.

Basis points
120

Percent
2.0

Global financial conditions have tightened, with larger increases inborrowing costs for some more-indebted emerging market and developing
economies (EMDEs). The recent rise in global yields has been driven byincreasing U.S. bond yields, but has been substantially less disruptive thanthe 2013 taper tantrum. Sovereign credit spreads in EMDEs haveincreased modestly, whereas capital flows have lost momentum. Some
EMDEs have experienced currency depreciations in recent months.

Low debt High debt

100

10-year U.S. Treasury yields
EMDE credit spreads

1.5

80
60

1.0

40

0.5

20

24-May4-May

25-Mar

13-Feb24-Jan14-Apr

-0.5

5-Mar

0.0

-20
4-Jan

0

Taper tantrum

D. EMDE exchange rates

C. EMDE portfolio flows
US$, billions
30

2021

EquityDebt

20

Index, 100 = December 2020
EM7 excl. China
106
Other EMDEs
104

10
102
0

Base metal prices have increased sharply this year,
supported by continued strong demand from
China as well as recovery in the rest of the world(ﬁgure 1.6.C). The forecast for metals prices in
2021 has been revised sharply upwards, and prices
are now expected to be 36 percent higher in 2021
on average relative to last year, before falling backin 2022 as some supply constraints ease.

100

-10

7-May

25-May1-Apr

19-Apr

14-Mar

6-Feb

24-Feb19-Jan1-Jan

Apr-21

May-21

Feb-21

Jan-21

Dec-20

Oct-20Nov-20Jul-20

Sep-20Jun-2098
Apr-20-20
May-20Oil prices are projected to average $62/bbl in
2021 and 2022. Oil demand is expected tocontinue to ﬁrm in the second half of 2021 but
will not regain its pre-pandemic level until nextyear, with the shortfall mainly due to subdued jet
fuel consumption (IEA 2021). A key risk to theforecast is the speed at which OPEC+ increases
production—the group currently has spare
production capacity of up to 9 million barrels perday, equivalent to 9 percent of global
consumption in 2019 (ﬁgure 1.6.B). A further
increase in drilling activity among U.S. shale oil
producers is also a potential risk to the oil priceforecast. In the longer term, the outlook for oil
and other energy commodities will be dependent
on the pace of transition toward renewable energy
sources.

Sources: Bloomberg; Haver Analytics; Institute of International Finance; International Monetary Fund;
J.P. Morgan; World Bank.
Note: EMDEs = emerging market and developing economies.
A. Aggregates are calculated using unweighted averages. “Low debt” indicates EMDEs with the 2020
general government debt below the median for the sample (60.5 percent of GDP). Sample includes
15 EMDEs. Last observation is May 25, 2021.
B. Cumulative change after the beginning of each episode, which is January 1, 2021 for 2021 andMay 22, 2013 for taper tantrum. EMDE credit spreads refer to JP Morgan Emerging Markets Bond
Index (EMBI) spread. Last observation is May 25, 2021.
C. Four-week cumulative net debt and equity portfolio flows to 18 EMDEs (excluding China). Lastobservation is May 28, 2021.
D. Figure shows the 5-day moving average nominal exchange rates versus the U.S. dollar; anincrease indicates depreciation. Sample includes 32 EMDEs with floating or free-floating exchange
rate; “EM7 excl. China” refers to India, Brazil, Mexico, the Russian Federation, Indonesia, andTurkey. Last observation is May 25, 2021.

Agricultural prices have also seen a substantial rise,
particularly those of food commodities, andconcerns about food insecurity persist in somecountries, especially those aﬄicted by conﬂict orexperiencing adverse weather events. While mostglobal agricultural commodity markets remain
well supplied, production growth for the main
crops has been below trend for the past few years(ﬁgure 1.6.D). Agricultural prices are expected torise by 16 percent in 2021 before plateauing in
2022.

18

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G LO BAL EC O NO MIC P ROS P EC TS | J U NE 2021

FIGURE 1.6 Commodity markets
Commodity prices have increased markedly this year, with many now well
above their pre-pandemic levels. While oil demand has picked up,
significant spare capacity remains among the OPEC+ countries. Demand
for metals remains robust. Despite recent price increases, agricultural
markets remain generally well supplied.
A. Commodity price indexes

B. Estimates of OPEC+ spare capacity

Index, 100 = 2019180
EnergyPercent of global production
Saudi Arabia
Other OPEC
14
Russian Federation
Other OPEC+
12
10
8
6
4
2
0

Agriculture

140
100
60

May-21

Jan-21

Sep-20May-20Jan-20

Sep-19Jan-19

May-1920

Jan-20Feb-20Mar-20
Apr-20May-20Jun-20Jul-20Aug-20
Sep-20
Oct-20Nov-20Dec-20Jan-21
Feb-21
Mar-21
Apr-21

MetalsC. Global metals demand growth

D. Food stock-to-use ratio

Percent, year-on-year
OECD
China
30

Percent

Other non-OECD

20

35
30

10

25
20

-20

15
2021

2018

2016

2014

2012

2010

2008

2006

2004

10
2002

Jan-21

Mar-21

Nov-20

Sep-20Jul-20May-20Mar-20Jan-20

-30

2000

0
-10

Sources: Bloomberg; International Energy Agency; U.S. Department of Agriculture; World Bank;World Bureau of Metal Statistics.
A. Last observation is May 2021.
B. Spare production capacity estimated as the difference between a country’s current production andtheir maximum level of output since 2018, shown as a percent of global supply in 2019. “Other
OPEC” includes all current OPEC countries except the Islamic Republic of Iran, Libya, Saudi Arabia,
and República Bolivariana de Venezuela, which are exempt from production cuts. Other OPEC+
includes Azerbaijan, Bahrain, Brunei Darussalam, Kazakhstan, Malaysia, Oman, South Sudan, andSudan.
C. Last observation is March 2021.
D. May 12, 2021 update. Years represent crop seasons (for example, 2019 refers to 2019-20 crop
season).

Major economies: Recent
developments and outlook
In advanced economies, progress in containing the
pandemic, primarily through a ramping up of
vaccinations, is expected to unlock significant pent-up
demand, allowing a gradual narrowing of the gap
between advanced-economy output and its prepandemic trend. The recovery is projected tostrengthen first in the United States on the back of
rapid vaccination and a new round of fiscal support,
followed gradually by other advanced economies. The
pronounced recovery in China is expected tomoderate as macroeconomic policy support is withdrawn.

Activity among advanced economies has been
propelled so far this year by a solid recovery in the
United States, partly due to the effects of massive
fiscal support. Vaccination campaigns are
generally proceeding at a faster pace thanenvisioned in the January baseline forecast, albeit
at varying degrees across countries (figure 1.7.A).
Still, most advanced economies have maintainedsome pandemic control measures to dampen
COVID-19 caseloads and guard against possible
resurgences.
More generally, advanced economies continue toexperience a two-track recovery, with sales andproduction of goods nearing or exceeding theirpre-pandemic levels, while services sectors struggle
to overcome headwinds from the pandemic andassociated lockdown measures (figure 1.7.B).
Although labor markets so far are healing at afaster pace than during the global financial crisis,
employment in early 2021 remains well below its
pre-pandemic level (figure 1.7.C).
Growth in advanced economies is forecast to reach
5.4 percent in 2021—2.1 percentage points higher
than envisioned in January, powered by strongerthan-expected momentum leading into 2021,
faster vaccination in several countries, additional
U.S. fiscal support, and the release of sizable pentup demand (figure 1.7.D). U.S. growth isexpected to outperform that of other majoradvanced economies due to its more rapid vaccine
rollout and larger fiscal support. After this year’s
rebound, growth is expected to moderate but
remain robust in 2022 as the removal of pandemic
control measures continues.
United States
The U.S. economy is recovering more quickly
than its peers from the pandemic shock, supported
by greater amounts of fiscal relief. Surging
personal income has boosted consumption, whichis expected to firm as households reduce theirsavings rate from historically high levels. The
signing of the American Rescue Act in March
offered $1.9 trillion in additional fiscal support,
bringing the cumulative fiscal relief provided since
the beginning of the pandemic to over one-quarter
of GDP—a level of support that is unprecedented

G LO BAL EC O NO MIC P ROS P EC TS | J U NE 2021

in peacetime. Vaccination is proceeding at arobust pace and is set to become widespread by
mid-2021.
In all, U.S. growth is projected to reach 6.8
percent in 2021—its fastest pace since 1984—reflecting additional large-scale fiscal relief and theongoing easing of pandemic restrictions. It is then
expected to soften to a still-strong 4.2 percent in
2022 as the fiscal impulse begins to fade.

CHAPTER 1

FIGURE 1.7 Advanced economies
Faster-than-expected vaccination in some advanced economies isstrengthening the growth outlook. Retail sales, industrial production, andconstruction have exceeded or are approaching pre-pandemic levels,
while consumption of services remains weak. Despite a nascent rebound,employment remains well below pre-pandemic trends, and below levels at
a similar time during the recovery that followed the global financial crisis.
The eventual containment of the pandemic is expected to unlock sizablepent-up demand as households spend their excess savings.
A. Effective daily vaccination rate inmajor advanced economies

Growth in 2021 is projected to reach 4.2
percent—0.6 percentage point above January
forecasts—and pick up further to 4.4 percent in
2022 as member countries steadily unwind
pandemic controls, enabling the continued releaseof pent-up demand. Disbursement of Next
Generation EU grants and loans will also
contribute to the recovery over the forecasthorizon, helping to finance various growthenhancing investments, including green anddigital infrastructure.
Japan
Following a bounce back in the second half of2020, Japan’s economy again contracted at thestart of 2021, weighed down by targeted
lockdown measures amid a resurgence of COVID19. Activity is expected to recover as sharply
diminished COVID-19 caseloads allow for acontinued relaxation of lockdown measures andfiscal support increasingly feeds through todomestic activity.
Japanese output is projected to expand 2.9 percent
in 2021—0.4 percentage point higher thanJanuary forecasts, reflecting firming domestic
economic activity alongside robust external

B. Activity indicators for advanced
economies
Index, 100 = 2020Q1
Index, 100 = January 2020
Industrial production
Retail sales
Construction (RHS)
120
120
Services consumption (RHS)
110

110

100

100

90

90

80

80
t
t+1
t+2
t+3
t+4
t+5
t+6
t+7
t+8
t+9
t+10
t+11
t+12
t+13
t+14

Euro area
A slow and inconsistent vaccine rollout and theneed to maintain stringent mobility restrictions in
the face of more transmissible variants haveconstrained the pace of recovery in the first half ofthe year. The euro area is set to experience astrong recovery in the second half of 2021,
alongside the expected acceleration of vaccinations
and a relaxation of pandemic restrictions.

19

C. Employment in advanced
economies

D. Household savings rate inadvanced economies

Index, 100 = t-1
102

Ratio
25

COVID-19
Global financial crisis
Pre-pandemic

100

20

98

15

96

10

94

5

92

COVID-19

Global financial crisis

0
t-1

t

t+1

t+2

t+3

t+4

t+5

t-1

t

t+1

t+2

t+3

t+4

t+5

Sources: CPB Netherlands Bureau for Economic Policy Analysis; Guénette and Yamazaki (2021);
Haver Analytics; Organisation for Economic Co-operation and Development; Our World in Data
(database); Oxford Economics; World Bank.
A. Figure shows the average seven-day moving average of effective daily COVID-19 vaccinations
administered per hundred people across the Group of Seven (G7) member countries which include
Canada, France, Germany, Italy, Japan, the United Kingdom, and the United States. As in Guénette
and Yamazaki (2021), effective vaccinations are computed by multiplying the total number ofvaccinations by 0.5 to account for multi-dose vaccines and by 0.85 to account for imperfect vaccine
effectiveness. Baseline and upside assumption as described in box 1.4 of the January 2021 editionof the Global Economic Prospects report (World Bank 2021a). Last observation is May 31, 2021.
B. For industrial production the weights represent country shares in global nominal, dollardenominated value added in industry. Aggregates for construction, retail sales and services
consumption are calculated using 2020 real U.S. dollar GDP weights at 2010-19 prices and market
exchange rates. Sample includes 35 advanced economies for the industrial production, 20 advanced
economies for the retail sales, 24 advanced economies for construction, and 14 advanced
economies for services consumption. Last observation is March 2021 for retail sales and industrial
production, and 2021Q1 for construction and services consumption.
C. Figure shows quarterly employment reindexed to equal 100 at t-1 quarters from the onset ofrespective shocks. “t-1” refers to 2019Q4 for COVID-19, 2008Q2 for the global financial crisis, and2019Q4 from January 2020 vintage data for pre-pandemic. COVID-19 data for “t+5” are forecasts.
Sample includes 20 advanced economies.
D. Figure shows quarterly ratio of personal savings over personal disposable income. “t-1” refers to
2019Q4 for COVID-19, and 2008Q2 for Global financial crisis. Sample includes 27 advanced
economies.

demand. The 2021 Tokyo Olympic Games are to
be held without foreign spectators, limiting its
economic benefits. Growth is envisioned to20

CHAPTER 1

G LO BAL EC O NO MIC P ROS P EC TS | J U NE 2021

FIGURE 1.8 China
China’s economic recovery has broadened from public investment to
consumption. Policy efforts have shifted from supporting activity to
reducing financial stability risks.
A. Growth and contributions to realGDP
Percentage points
20
Net exports
Investment
15
Consumption
10

B. Liquidity injections and growth ofmoney supply

Percent
20

GDP growth Y/Y (RHS)

15

Percent of GDP
10

Net liquidity provision
M2 (RHS)

Percent

6
10

5

5

0

0

10

4
2
9

0

-5

-5

2015-19 2020H1 2020H2 2021Q1

11

8

-2
-4

8

2019

2020H1

2020H2 2021Q1

Sources: Haver Analytics; National Bureau of Statistics of China; World Bank.
A. Figure shows year-on-year GDP growth and contributions to real GDP. Investment stands forgross capital formation. Last observation is 2021Q1.
B. Figure shows year-on-year growth of money supply and net liquidity provision as share of GDP.
Money supply is the M2 from China's Banking Survey. Net liquidity injection provided by the People's
Bank of China (PBOC) through standing lending facility (SLF), the medium-term lending facility (MLF),
the targeted medium-term lending facility (TMLF), the pledged supplementary lending (PSL), thespecial-purpose refinancing (SPRF), and the special relending or rediscounting facilities. Lastobservation is March 2021 for M2 and 2021Q1 for net liquidity provision.

Emerging market anddeveloping economies
Although improving external demand and higher
commodity prices are lifting aggregate activity inemerging market and developing economies(EMDEs), the recovery in many of them is being
constrained by a severe resurgence of new COVID-19
cases and lagging vaccination, as well as a partial
withdrawal of macroeconomic policy support. The
pandemic continues to have a particularly
dampening effect on tourism-reliant economies and isfurther exacerbating domestic challenges in lowincome countries. In all, the pace of recovery in twothirds of EMDEs will be insufficient to recoup the
per capita income losses caused by the pandemic by
2022, and poverty rates are expected to rise further.
The long-term outlook has also deteriorated, owing to
the pandemic’s lasting impact on potential output.
Recent developments

moderate in 2022, to 2.6 percent, held back bylingering weakness in consumption amid subdued
wage growth.
China
After expanding 2.3 percent in 2020, output in
China has continued to recover, graduallybroadening from public investment and exports todomestic consumption (figure 1.8.A). Policy has
been shifting away from buttressing activity andtoward reducing financial stability risks (figure
1.8.B). Credit support and infrastructure
spending, which initially fueled much of theacceleration in investment, have moderated. Debt
defaults, including for state-owned enterprises,
have continued to rise (World Bank 2021c).
China’s growth is forecast to rebound to 8.5
percent this year, reflecting the release of pent-up
demand. This represents an upward revision of 0.6
percentage point, largely owing to expectations ofstronger foreign demand. Amid diminishing fiscal
and monetary support and tighter property andmacroprudential regulations, growth is expected tomoderate in 2022, to 5.4 percent.

Aggregate EMDE output in 2020 fell 1.7 percent,less severe than the expected contraction of 2.3
percent. This reflected better-than-expected
activity in some large economies, such as China, as
well as among industrial commodity exporters,
which benefited from rising energy and metals
prices toward the end of last year. The upgrade in2020 was not broad-based, however. Growthestimates were upgraded in just over half of
EMDEs, and outturns for most tourism-reliant
economies were weaker than expected (figure
1.9.A-B). Excluding China, the contraction in
EMDE output was far more severe, at 4.3 percent,as many countries faced continued headwinds
from the pandemic.
Uneven progress at vaccination has allowed for
sharp resurgences of COVID-19 cases, oftenfeaturing new variants, which have dampened therecovery in many EMDEs (figure 1.10.A). Services
activity remains feeble amid ongoing socialdistancing and lockdown measures, while
depressed international tourism and travel weighon services trade (figure 1.10.B). Retail sales arestabilizing below pre-pandemic levels, reflecting
renewed softness in countries grappling with high

G LO BAL EC O NO MIC P ROS P EC TS | J U NE 2021

Following a sharp slowdown in 2020, activity in
LICs has recovered somewhat this year, as somecountries benefit from improving industrial
commodity exports.
Nonetheless, growthcontinues to be dampened by the effects of thepandemic and the very slow pace of vaccinations,which have delayed the relaxation of control
measures and inhibited activity that relies on
face-to-face interaction (Afghanistan, Guinea,
Madagascar; box 1.3). Some fragile and conflictaffected LICs have also had to contend withfloods, droughts, locust infestations, and risinginsecurity (Central African Republic, Eritrea,
Mali, Sudan).

The collapse in activity in 2020 was shallower than anticipated for anumber of emerging market and developing economies (EMDEs),
especially industrial commodity exporters. In contrast, growth forecasts formost tourism-reliant economies were downgraded.
A. Revisions to 2020 GDP estimates

B. Share of EMDEs with GDP
upgrades/downgrades in 2020

Percentage points
1.8

Percent

1.2

75

0.6

50

0.0

25

-0.6

0
Industrial
commodity
exporters

Tourismreliant
economies

Unchanged

Total IDA
countries

EMDEs

Downgraded

Tourismreliant
economies-1.2

UpgradedCommodity
importers

100

Industrial
commodity
exporters

The pace of recovery has diverged across EMDE
regions (box 1.2; chapter 2). A strong rebound ingoods exports has underpinned activity in East
Asia and Pacific (EAP), helping to offset softdomestic demand. Elsewhere, the recovery ingoods trade volumes and industrial production has
been more tepid. In Europe and Central Asia
(ECA) and Latin America and the Caribbean(LAC), high COVID-19 caseloads continue toconstrain growth. In the Middle East and North
Africa (MENA), OPEC+ oil production restraint
is weighing on extractive activity. In Sub-SaharanAfrica (SSA), the continuation of COVID-19
restrictions has curbed business activity, withweakness in some industrial sectors compoundedby power outages and subdued oil production. In
South Asia (SAR), a robust rebound in services
has been interrupted by a sharp worsening of
COVID-19 cases and a deterioration in mobility
indicators.

FIGURE 1.9 Recent developments in emerging market
and developing economies

EMDEs

COVID-19 caseloads (figure 1.10.C). Private
investment has been constrained by an earlier
collapse in FDI and, in some cases, escalations inpolitical tensions or heightened policy uncertainty(figure 1.10.D; UNCTAD 2021). Nevertheless,the drag from the pandemic has been offset by acontinued recovery in industrial production andgoods trade, with both surpassing pre-crisis levels
faster than in the aftermath of the global financial
crisis (figure 1.10.E). Moreover, robust remittanceinflows have partly cushioned household incomesamid widespread unemployment (figure 1.10.F;
ILO 2021b).

21

CHAPTER 1

Sources: United Nations World Tourism Organization; World Bank.
Note: EMDEs = emerging market and developing economies. Tourism-reliant EMDEs are defined as
EMDEs with average 2015-19 inbound tourism expenditures as a share of GDP above the fourth
quartile. Aggregates are calculated using real U.S. dollar GDP weights at average 2010-19 prices andmarket exchange rates.
A. Figure shows revisions of country groups 2020 growth estimates relative to the January 2021
edition of the Global Economic Prospects report (World Bank 2021a). EMDE average calculatedusing 2019 nominal U.S. dollar GDP. Sample includes 140 EMDEs, among which 48 are industrial
commodity exporters and 37 are tourism reliant. Yellow whiskers show interquartile range.
B. Figure shows the share of EMDEs whose 2020 growth estimates have been upgraded or
downgraded relative to the January 2021 edition of the Global Economic Prospects report (WorldBank 2021a). Dashed yellow line indicates 50 percent threshold. Total IDA countries are thoseeligible to receive IDA resources, including IDA blend countries. Sample includes 144 EMDEs, among
which 47 are industrial commodity exporters, 58 are commodity importers, 36 are tourism-reliant
economies, and 71 are Total IDA countries.

Outlook
EMDE near-term outlook
The recovery in aggregate EMDE activity is
anticipated to gather further pace in the second
half of 2021 as vaccine deployment, while still
uneven, gradually proceeds, particularly in large
countries. Aggregate EMDE growth is forecast toreach 6 percent in 2021, supported by improving
external demand and elevated commodity prices.
The 2021 forecast is 0.8 percentage point higher
than earlier projections; however, this mostly
reflects sizable upgrades to some large economies,
as well as strong momentum from late 2020
(figure 1.11.A-B). In particular, the projection for
China’s growth for 2021 has been revised up due
to expectations of more robust external demand.
The recovery in EMDEs excluding China is
projected to be more modest, at 4.4 percent in
2021, with about 40 percent of countries facing
downward revisions to growth this year, reflecting

22

CHAPTER 1

G LO BAL EC O NO MIC P ROS P EC TS | J U NE 2021

FIGURE 1.10 Recent developments in emerging market
and developing economies, excluding China
Sharp resurgences of new COVID-19 cases have continued to weigh on
the recovery in many emerging market and developing economies.
Services trade remains anemic, as international tourism continues to bedampened by ongoing travel restrictions, while retail sales have stabilized
below pre-pandemic trends. Subdued FDI is constraining investment.
Nevertheless, activity has benefited from improving goods trade and robust
remittance inflows, which are recovering more quickly than in the aftermathof the global financial crisis.
A. Quarterly GDP

B. Services trade and tourist arrivals

Index, 100 = t-1
105

COVID-19 pandemic
Global financial crisis

100

Index, 100 = t
Percent change, year-on-year
Services trade25
125
Tourist arrivals (RHS)
100
0
75

-25

95

-100

t+4

t

C. Retail sales
Index, 100 = t
110

t
t+1
t+2
t+3
t+4
t+5
t+6
t+7
t+8
t+9
t+10
t+11
t+12
t+13

0
t+3

85

t+2

-75

t+1

-50

25

t-1

50
90

D. FDI flows to EMDEs
COVID-19 pandemic
Global financial crisis

100

COVID-19 pandemic
Global financial crisis

Index, 100 = t-1
120

continued disruptions from the pandemic and thepartial removal of monetary and, especially, fiscal
support (figure 1.11.C). Although vaccine
procurement and distribution are expected togradually accelerate over the forecast horizon, it
will remain uneven in the near term, withbottlenecks in the equitable distribution of
vaccines anticipated to weigh on the recovery inmany EMDEs (figure 1.11.D-E).
Aggregate EMDE growth is projected to edge
down to 4.7 percent in 2022, as macroeconomic
support continues to be withdrawn andcommodity prices stabilize. Tourism-dependent
economies, such as small island countries, areexpected to continue to experience theconsequences of subdued international travel nextyear, which will delay the recovery (UNWTO
2021). More generally, the recovery in EMDEs
will not be sufficient to recoup earlier losses, with
output in 2022 expected to remain 4.1 percent
below pre-pandemic projections (figure 1.11.F).

100

EMDE long-term outlook

80

In the longer term, the EMDE outlook will likely
be dampened by the pandemic’s lasting legacies.
EMDE potential output—the activity EMDEs
can sustain at full capacity and employment—
is expected to remain below pre-pandemic
projections over the next decade. Major drivers ofgrowth had been projected to lose momentum
even before the COVID-19 crisis, and this trend islikely to be exacerbated by the scarring effects ofthe pandemic (figure 1.12.A; Kilic Celik, Kose,
and Ohnsorge 2020; World Bank 2021a). The
pandemic is expected to worsen the slowdown inlabor productivity growth, as it has damaged theprocess of both physical and human capital
accumulation (Dieppe 2020). It is possible thatthe pandemic spurs productivity by accelerating
technology adoption, innovation, and a shift in
activity toward more productive sectors, but thishas not yet been observed on a global scale,whereas the damage to investment and humancapital is readily apparent (di Mauro and Syverson2020).

90
80

60

E. Goods trade and industrial
production

F. Remittances flows to EMDEs

Index, 100 = t
120

Index, 100 = t-1
120

COVID-19 pandemic
Global financial crisis

100

110

80

100

t+4

t+3

t+2

t+1

40
t

t
t+1
t+2
t+3
t+4
t+5
t+6
t+7
t+8
t+9
t+10
t+11
t+12
t+13
t+14

60

t-1

70

COVID-19 pandemic
Global financial crisis

90

t+3

t+2

80
t+1

Industrial productiontGoods trade

t-1

t
t+2
t+4
t+6
t+8
t+10
t+12
t+14
t
t+2
t+4
t+6
t+8
t+10
t+12
t+14

60

Sources: CPB Netherlands Bureau for Economic Policy Analysis; Haver Analytics; International
Monetary Fund; United Nations World Tourism Organization; World Bank; World Trade Organization.
Note: EMDEs = emerging market and developing economies; FDI = foreign direct investment. Unlessotherwise noted, t = 100 for the global financial crisis in September 2008; t = 100 for the COVID-19
pandemic in January 2020.
A.D.F. t-1 = 100 for the global financial crisis in 2008Q2; t-1 = 100 for the COVID-19 pandemic in
2019Q4.
B. Services trade measured as the average of import and export values. Last observation is January
2021 for tourist arrivals and February 2021 for services trade.
C. Last observation is March 2021.
D. Balanced sample includes 52 EMDEs.
E. Goods trade is measured as the average of import and export volumes. Last observation is March
2021.
F. Last observation is 2020Q4. Unbalanced sample includes up to 94 EMDEs for global financial
crisis and up to 122 EMDEs for COVID-19 pandemic.

Investment—both public and private—is expected
to remain well below pre-pandemic projections fora prolonged period, which will result in a smaller

G LO BAL EC O NO MIC P ROS P EC TS | J U NE 2021

capital stock and lower productivity (figure
1.12.B; World Bank 2018a). Impaired corporate
productivity and heightened risk aversion will
likely impede private investment, whereas the needto unwind fiscal support in some EMDEs will
constrain public investment (Caballero andSimsek 2020; Stiglitz 2020; World Bank 2021a).
Sizable investment needs of many EMDEs, andparticularly LICs, are likely to go unmet, putting
development goals further out of reach (WorldBank 2021d).
The pandemic has also eroded earlier gains inhuman capital through its impact on healthoutcomes, school closures, and prolonged spells of
unemployment. Beyond its direct effects on
morbidity and mortality, the pandemic has alsodelayed essential primary health services andincreased food insecurity, which could lead tohigher maternal and early childhood deaths(Roberton et al. 2020). These effects are also likely
to weigh on longer-term productivity, as
malnutrition early in life can permanently impair
learning abilities. Education has also been
disrupted as partial and full school closurescontinue to interrupt learning continuity, which
could worsen learning outcomes (figure 1.12.C).
This, combined with the deskilling associated withprolonged unemployment, could lead to sizable
future earnings losses.1 In EMDEs, COVID-19
triggered a fall in working hours equivalent to theloss of roughly 200 million full-time jobs in 2020,
with employment not expected to recover to prepandemic levels by 2022, particularly in
LICs (figure 1.12.D; ILO 2021b; Khamis et al.
2021). The longer unemployment remains high,the more pronounced will be the loss of humancapital.
LIC outlook
In LICs, growth is expected to pick up in 2021,
reaching 2.9 percent, aided by firming external
demand from LICs’ trading partners and elevated

1 See Azevedo et al. (2021); Bundervoet, Davalos, and Garcia(2021); UNESCO (2021); and UNICEF (2021) for a discussion of
the impact of COVID-19 on education. See Azevedo et al. (2020)and Fasih, Patrinos, and Shafiq (2020) for a discussion of the impact
of COVID-19 on future labor earnings through its disruptions to
education and employment.

CHAPTER 1

23

FIGURE 1.11 Prospects for growth in emerging market
and developing economies
The forecast for aggregate growth in emerging market and developing
economies (EMDEs) for 2021 has been revised up, to 6 percent; however,this mainly reflects substantial upgrades to some large economies as well
as strong carryover from growth in late 2020. Firming external demand andhigher commodity prices will help offset macroeconomic policy tightening.
The recovery will critically depend on the pace of vaccination. For tourismreliant economies, activity will continue to be constrained by subdued
international travel. In all, the pickup in EMDE growth will be insufficient torestore GDP to pre-pandemic projections.

A. Forecast revisions to EMDE growth
EM7 excl. China
China
Other EMDEs
EMDEs

Percentage point
1.0
0.8

B. Contributions to 2021 GDP growth
Percentage points
Percent
Current year conditions
8
8
Carryover from 20202021 GDP growth (RHS)
6
6

0.6
4

4

2

2

0.4
0.2
0.0
2021

2022

0

0

EMDEs

EMDEs excl. China

C. Fiscal and monetary policy stancein 2021

D. Vaccine procurement in 2021

Percent of EMDEs
Tightening
100

Percent of population
400

Unchanged

Loosening

75

300

50

200

25

100

0

0
Fiscal stance

Monetary policy rate

E. Forecast revisions to EMDE growthin 2021, by vaccination progress
Percentage points
1.2

Advanced economies

EMDEs

F. EMDE growth forecasts and gaps
with pre-pandemic projections

EMDE average
forecast revision

0.8
0.4
0.0
-0.4
Above-medianvaccination

Below-medianvaccination

Sources: Duke Global Health Innovation Center (2021); Haver Analytics; International Monetary Fund;
Our World in Data (database); World Bank.
Note: EMDEs = emerging market and developing economies; EM7 = Brazil, China, India, Indonesia,
Mexico, the Russian Federation, and Turkey. Aggregate growth rates calculated using GDP weights
at average 2010-19 prices and market exchange rates. Shaded area indicates forecasts.
A.E. Figure shows contributions to revision of EMDE growth forecasts relative to World Bank (2021a).
A. Sample includes 147 EMDEs.
B. Figure shows contribution to annual growth using quarterly data. Sample includes 48 EMDEs.
C. Fiscal loosening/tightening threshold is a fiscal impulse of +/- 0.5 percentage point of potential
GDP. Fiscal impulse is the negative change in the cyclically-adjusted primary balance from theprevious year. Monetary policy stance is measured using year-to-date net policy rate hikes/cuts.
Sample includes 30 EMDEs for fiscal balance and 70 EMDEs for monetary policy rate.
D. Figure shows the share of confirmed vaccine doses purchased as a share of total population.
Sample includes 16 advanced economies and 67 EMDEs. Data are as of May 27, 2021.
E. GDP-weighted forecast revisions above and below the EMDE median share of population that hasreceived at least one COVID-19 vaccine dose as of June 1, 2021. Sample includes 132 EMDEs.
F. GDP levels are relative to World Bank (2020d) forecasts. Sample includes 144 EMDEs, of which 37
are tourism reliant (defined as having average 2015-19 inbound tourism expenditures as a share of
GDP above the fourth quartile).

24

CHAPTER 1

G LO BAL EC O NO MIC P ROS P EC TS | J U NE 2021

FIGURE 1.12 Long-term outlook in emerging market anddeveloping economies
The pandemic is likely to lead to a lasting reduction in the level of potential
output in emerging market and developing economies (EMDEs) and may
cause potential growth to lose further momentum over the next decade.
Investment will remain well below pre-pandemic projections for a
prolonged period, hindering long-term growth. COVID-related school
closures are expected to worsen learning outcomes in EMDEs, while
prolonged spells of unemployment may lead to a deterioration in skills.
A. EMDE potential growth prospects

B. Investment gaps with pre-pandemic
projections

Uganda; UNWTO 2021; World Bank 2021a).
Nevertheless, the level of aggregate LIC output in
2022 will still be 4.9 percent below pre-pandemic
projections.
Furthermore, LIC forecasts for this year and next
have been downgraded—especially in fragile andconflict-affected countries, where the outlook is
particularly dire (figure 1.13.A). For this subset of
LICs, growth is expected to average 2.5 percent in
2021-22—0.7 percentage point below previous
forecasts, as an improved external context is morethan offset by increased debt burdens, policy
uncertainty, social unrest, and rising insecurity.
Per capita income growth and poverty

C. Learning-poverty rates

D. Working-hour losses, deviationfrom pre-pandemic levels

Percent

Percent0

Post-COVID EMDE rate

100

2021

2022

75
-2
50
-4

25
0
Advanced
economies

EMDEs

LICs

-6
World

EMDEs

LICs

Sources: Azevedo et al. (2021); International Labour Organization (2021b); Kilic Celik, Kose, andOhnsorge (2020); World Bank.
Note: EMDEs = emerging market and developing economies; LICs = low-income countries; TFP =total factor productivity.
A. Potential growth estimates based on a production function approach as described in Kilic Celik,
Kose, and Ohnsorge (2020). 2010-19 aggregates are calculated using 2009 constant GDP-weighted
average for 68 EMDEs. 2020-29 aggregates are calculated using post-COVID prospects and 2019
constant GDP-weighted average for 68 EMDEs. Post-COVID prospects assume that investment
grows as expected by forecasts from Consensus Economics and secondary attainment rates decline
by 2.5 percentage points. Shaded areas indicate forecasts.
B. Figure shows investment levels relative to January 2020 projections in World Bank (2021a).
C. The learning-poverty rate is the proportion of 10-year-olds unable to read a short, age-appropriate
text, as described in Azevedo et al. (2021). Blue bars show the pre-COVID estimations and red
horizontal line denotes the expected impact of COVID-19 on learning poverty due to education
disruptions. Orange whiskers show the minimum-maximum ranges for each country group.
D. International Labour Organization (ILO) model-based data are expressed as a percentage
difference between the projected number of total hours worked assuming that there had been no
pandemic and total hours worked as projected under the three scenarios. Bars represent workinghour losses, yellow whiskers show ILO pessimistic and optimistic scenarios.

commodity prices. Despite this year’s recovery, thepace of expansion will be the slowest of the past
two decades excluding 2020 amid a very slow paceof vaccination. Growth is subsequently projected
to firm to 4.7 in 2022, as vaccine distribution
bolsters activity. In tourism-reliant countries, awider administration of the vaccine is also
envisioned to support the recovery (Madagascar,

With economic activity rebounding this year,
EMDE per capita income growth is projected toreach 4.9 percent in 2021 and edge down to 3.6
percent next year (figure 1.13.B). Among LICs,
however, per capita income growth is expected tobe essentially zero this year and a meager 2
percent in 2022. At this rate, per capita income
growth in many EMDEs—especially in fragile andconflict-affected LICs—will fall short of the paceof recovery in advanced economies over the next
two years. In many economies, this will slow oreven reverse the pace of per capita income catchup (figure 1.13.C). In all, per capita income losses
incurred in 2020 will not be fully unwound by
2022 in about two-thirds of EMDEs—including
75 percent of fragile and conflict-affected LICs—
as the lingering effects of job losses and heightened
uncertainty continue to dampen domestic demand(figure 1.13.D; Furceri et al. 2021; ILO 2021a).
The per capita income losses incurred due to
COVID-19 are anticipated to worsen deprivation
along multiple dimensions in health, education,and living standards, with large increases inpoverty headcounts, particularly in Sub-SaharanAfrica and South Asia (figure 1.13.E; Alkire et al.
2020). In all, it is projected that about 100 million
people will have fallen back into extreme poverty
by the end of this year due to the pandemic,
making the Sustainable Development Goals(SDGs) more elusive (World Bank 2020b).
In addition to reversing gains in global poverty
reduction for the first time in a generation last

G LO BAL EC O NO MIC P ROS P EC TS | J U NE 2021

CHAPTER 1

BOX 1.2 Regional perspectives: Recent developments and outlook
The recovery in most EMDE regions is expected to be insufficient to reverse the damage from the pandemic. By 2022, output inall regions is expected to remain below pre-pandemic projections, weighed down by the ongoing pandemic and its legacies, which
include higher debt loads and damage to many of the drivers of potential output. The recovery in small, tourism-dependent
economies is expected to be particularly weak as some travel restrictions will remain in place until the pandemic is brought undercontrol. The pace of vaccine rollout varies across countries, with low-income countries lagging considerably. The recovery is
expected to be strongest in East Asia and the Pacific, primarily due to strength in China. In South Asia, India’s recovery is being
hampered by the largest outbreak of any country since the beginning of the pandemic. In the Middle East and North Africa andLatin America and the Caribbean, the pace of growth in 2021 is expected to be less than the magnitude of the contraction in
2020, while the tepid recovery in Sub-Saharan Africa will make little progress in reversing the increase in extreme poverty causedby the pandemic. In most regions, risks to the outlook are tilted to the downside. All regions remain vulnerable to renewed
outbreaks of COVID-19, which could feature variant strains of the virus; financial stress amplified by elevated debt levels; deeper-than-expected scarring from the pandemic; and rising social unrest, potentially triggered by rising food prices.
East Asia and Pacific. Growth in the region is projected toaccelerate to 7.7 percent in 2021, largely reflecting a strong
rebound in China. Nevertheless, output in two-thirds ofthe countries in the region will remain below prepandemic levels until 2022. The pandemic is expected todampen potential growth in many economies, especiallythose that suffered most from extended outbreaks of
COVID-19 and the collapse of global tourism and trade.
Downside risks to the forecast include the possibility of
repeated and large COVID-19 outbreaks amid delayed
vaccinations; heightened financial stress amplified byelevated debt levels; and the possibility of more severe andlonger-lasting effects from the pandemic, including
subdued investment and eroded human capital.
Disruptions from natural disasters are a constant source ofsevere downside risk for many countries, especially island
economies. On the upside, risks include accelerated
vaccination rollouts and greater-than-expected spillovers
from recoveries in the United States and other major
economies.
Europe and Central Asia. The regional economy isprojected to grow 3.9 percent in 2021, with firming
external demand and higher industrial commodity prices
offsetting the negative impact of recent resurgences in new
COVID-19 cases. Regional growth is forecast to remain at
3.9 percent in 2022 as the recovery in domestic demand
gains traction. The outlook remains uncertain, however,with uneven vaccine rollouts and the withdrawal ofmacroeconomic support measures weighing on theregional recovery. Growth could be weaker than projected
if the pandemic takes longer than expected to abate,external financing conditions tighten, or geopolitical

Note: This box was prepared by Patrick Kirby with contributions
from Cedric Okou, Franz Ulrich Ruch, Ekaterine Vashakmadze, Dana
Vorisek, and Collette Wheeler.

tensions rise further. Legacies of the pandemic, including
slowdowns in physical and human capital accumulation,loom over the medium-term outlook if left unaddressed.
Latin America and the Caribbean. Activity is projected to
grow 5.2 percent in 2021—a rebound insufficient toreturn GDP to 2019 levels this year after a historicallydeep recession in 2020. The rebound will be supported bymoderate progress in vaccine rollouts, relaxation ofmobility restrictions, and improved external economic
conditions. Per capita income losses will still be deep in2022, particularly for small island economies in the
Caribbean. Although spillovers from robust growth andadditional fiscal support in the United States throughtrade and confidence channels are an upside risk to thebaseline forecast, the balance of risks is tilted to thedownside. Key downside risks include a slower-thanexpected COVID-19 vaccine rollout; further surges in new
COVID-19 cases, including from variant strains of thevirus; adverse market reactions from social unrest or
strained fiscal conditions; and disruptions related to social
unrest or to climate change and natural disasters.
Middle East and North Africa. Regional output isprojected to grow by a subdued 2.4 percent in 2021, only
half the pace of the recovery following the 2009 global
recession. Higher oil prices have bolstered growthprospects in oil exporters, but the improvement has been
limited by new virus outbreaks and mixed progress at
vaccine rollout. COVID-19 resurgences have also
worsened the outlook for oil importers. By 2022, regional
activity is expected to remain 6 percent below prepandemic projections. Risks to the regional outlook
remain predominantly to the downside. Limited vaccine
progress suggests that the pandemic may intensify again,
new variants may emerge, and mobility restrictions may be
reimposed. The region is also exposed to risks fromconflict and social unrest, high debt in some economies,

25

26

G LO BAL EC O NO MIC P ROS P EC TS | J U NE 2021

CHAPTER 1

BOX 1.2 Regional perspectives: Recent developments and outlook (continued)
FIGURE B1.2.1 Regional growth
The recovery in most EMDE regions this year is expected to be insufficient to reverse the damage from the pandemic. In the
Middle East and North Africa and Latin America and the Caribbean, the rebound of growth in 2021 is expected to be smaller
than the contraction in 2020, while the tepid recovery in Sub-Saharan Africa (SSA) will make little progress in reversing theincrease in extreme poverty caused by the pandemic. The global pandemic has left behind a legacy of higher debt andscarring to potential output that is expected to impede the recovery of activity back to its pre-pandemic trend. In all regions,per capita income catch-up with advanced economies is projected to either slow or go into reverse.
A. Regional growth

B. Gaps with pre-pandemic projections
by 2022

C. Per capita income convergence

Percent0

Percentage points
62021-23

2010-19

4
-4

2
0

-8

-2
-4

-12
EAP

ECA

LAC

MNA

SSA

SAR

EAP

SAR

ECA

LAC

MNA

SSA

Source: World Bank.
Note: EAP = East Asia and Pacific, ECA = Europe and Central Asia, LAC = Latin America and the Caribbean, SAR = South Asia, SSA = Sub-Saharan Africa.
A. Bars denote latest forecast; diamonds correspond to January 2021 forecasts in the Global Economic Prospects report. Aggregate growth rates calculated using
constant GDP weights at average 2010-19 prices and market exchange rates. Since largest economies account for more than 50 percent of GDP in some regions,weighted averages predominantly reflect the developments in the largest economies in each region.
B. Figure shows the gaps between the current projections and the forecasts in the January 2020 edition of the Global Economic Prospects report.
C. Relative per capita income growth is computed as a difference in per capita GDP growth between each respective region and advanced economies, expressed inpercentage points.

and unfavorable commodity price developments. Theserisks could interact and further undermine living
standards,
increase
deprivationforvulnerable
communities, and heighten food insecurity.
South Asia. Output in the region is expected to expand
6.8 percent in 2021, a pace on par with average growthover the previous decade. Stronger-than-expected
momentum at the beginning of the year has been
disrupted by a large surge of COVID-19 cases. Despite
continued recovery, output in 2022 is forecast to be 9
percent below pre-pandemic projections. Poverty rates
have risen, and by the end of this year more than half the
new global poor are expected to live in the region. The
outlook could be weaker if vaccination does not proceed as
quickly as assumed. Financial sector balance sheets are at
risk of deteriorating, as policy measures put in place at thepeak of the pandemic are scaled back, which could
constrain the provision of credit and investment needed tosupport the recovery.

Sub-Saharan Africa. Regional activity is expected to
expand a modest 2.8 percent in 2021 and 3.3 percent next
year. Positive spillovers from strengthening global activity,
better international control of COVID-19, and strong
domestic activity in agricultural commodity exporters are
expected to gradually help lift growth. Nonetheless, therecovery is envisioned to remain fragile, given the legaciesof the pandemic and the slow pace of vaccinations in theregion. In a region where tens of millions more people are
estimated to have slipped into extreme poverty because of
COVID-19, per capita income growth is set to remain
feeble, averaging 0.4 percent a year in 2021-22, reversing
only a small part of last year’s loss. Risks to the outlook aretilted to the downside, and include lingering procurement
and logistical impediments to vaccinations, further
increases in food prices that could worsen food insecurity,
rising internal tensions and conflicts, and deeper-thanexpected long-term damage from the pandemic.

G LO BAL EC O NO MIC P ROS P EC TS | J U NE 2021

year, COVID-19 is set to cause lasting damage tothe living conditions of the most vulnerable
populations. In LICs, this compounds thechallenges faced by the 112 million people whoare already facing food insecurity and the 223
million who are exposed to significant flood risk
(figure 1.13.F; Furceri et al. 2020; WFP and FAO
2021; World Bank 2021e). The pandemic is also
bound to worsen income and gender inequality
given its outsized negative effect on women,children, and unskilled and informal workers, aswell as its adverse effects on education, health, andliving standards (Bundervoet, Davalos, and Garcia
2021; Lakner et al. 2020; Ohnsorge and Yu
2021).

Global outlook and risks
Global growth is recovering unevenly. The pickup in
many emerging market and developing economies(EMDEs) remains constrained by high COVID-19
caseloads and the partial withdrawal of macroeconomic support, while activity in major economies—
particularly the United States—is rebounding
markedly. Aggregate global activity is not expected to
be strong enough to fully recoup last year’s output
losses in the near term. New variants of COVID-19
could extend the duration of the pandemic, and asudden rise in interest rates or an increase incorporate defaults could trigger financial stress,
resultinginweaker-than-expected
activity.
Conversely, global and EMDE growth could be morerobust if the virus is controlled more quickly or if
spillovers from rapid growth in major economies
catalyze a sustained, broad-based global rebound.

27

CHAPTER 1

FIGURE 1.13 Poverty and per capita income in emerging
market and developing economies
GDP growth forecasts in low-income countries (LICs) have been
downgraded for 2021-22; in per capita terms, LIC growth will beessentially zero this year. Per capita income catch-up with advanced
economies could slow or even reverse in many emerging market anddeveloping economies (EMDEs). The pandemic has erased at least three
years of per capita income gains in about two-thirds of EMDEs, including
75 percent of fragile and conflict-affected LICs. Poverty headcounts are set
to rise sharply, especially in Sub-Saharan Africa and South Asia, leaving
millions of the world’s poorest even more vulnerable to future shocks,
including adverse weather.
A. Forecast revisions to LIC growth

B. Per capita GDP growth

Percentage point
0.0

Fragile LICs

Non-Fragile LICs

LICs

-0.2
-0.4
-0.6
-0.8
2021

2022

C. Per capita income growth relative
to advanced economies

D. Share of countries with lower per
capita GDP level in 2022 than 2019

Percentage points
4

Percent
75

2021-23

2010-19

2
50

0
25

-2
-4
EMDEs EMDEs
excl.
China

LICs

FragileLICs

Small
states0
Advanced EMDEs
economies

LICs

FragileLICs

E. Increase in poverty headcounts dueto the pandemic by end-2021

F. Number of poor exposed to floodrisk

Number of people, millions
200
SAR
SSA
Other EMDEs
150
EMDEs

Number of people, millions
600

Other EMDEs
LICs
EMDEs

400

100

Global outlook
The global economy is recovering, and is expected
to expand by 5.6 percent in 2021 and 4.3 percent
in 2022 (figure 1.14.A). The strength of the nearterm recovery is, to a large extent, attributable to afew major economies, such as the United States
and China (figure 1.14.B-C). In many othereconomies, the pickup is projected to be lessrobust than previously envisioned, partly due tothe continued spread of the virus and slow vaccine
distribution (figure 1.14.D). On aggregate, theglobal forecast has been upgraded as a result of thediminishing economic impact of subsequent waves

200
50
0

0
Extreme poverty

Multidimensional
poverty

Less than$1.90/dayLess than$3.20/dayLess than$5.50/day

Sources: Mahler et al. (2021); Rentschler and Salhab (2020); World Bank; World Bank (2020b).
Note: EMDEs = emerging market and developing economies; LICs = low-income countries; Fragile
LICs = fragile and conflict-affected LICs; Other EMDEs = EMDEs that are not low-income countries;
SAR = South Asia; SSA = Sub-Saharan Africa. Shaded areas indicate forecasts.
A.B.D. Aggregates calculated using GDP weights at average 2010-19 prices and market exchange
rates.
C. Relative per capita income growth is computed as a difference in per capita GDP growth between
respective EMDE groups and advanced economies. For more information on “Small states,” see:https://www.worldbank.org/en/country/smallstates/overview.
D. Sample includes 36 advanced economies and 147 EMDEs, including 25 LICs and 16 fragile andconflict-affected LICs. Orange line is 50 percent line.
E. Figure shows the estimated number of people pushed into poverty as a result of the pandemic.
This is calculated by comparing poverty using pre- and post-pandemic growth forecasts (Lakner et al.
2020). Extreme poverty reflects the international poverty line of $1.90/day. Multidimensional poverty
also includes deprivations in health, education, and living standards (UNDP and OPHI 2020; WorldBank 2020b). Percent increase in multidimensional poverty as a result of the pandemic is estimatedto be the same as for extreme poverty.
F. Number of poor exposed to significant flood risk, by poverty line (Renschler and Salhab 2020).

28

CHAPTER 1

G LO BAL EC O NO MIC P ROS P EC TS | J U NE 2021

FIGURE 1.14 Global outlook and risks
The global economy is recovering. The faster-than-expected rebound is toa large extent attributable to a few major economies, such as the UnitedStates and China. In many emerging market and developing economies,
growth forecasts have been downgraded and output is projected to remain
well below pre-pandemic trends, weighed down by the effects of thepandemic. Although risks to the outlook have become more balanced,
downside risks are significant.
A. Global growth

B. Share of global growth

C. Contributions to global growth

D. Share of countries with forecast
revisions
Percent of countries
Upgraded

100

Downgraded

Unchanged

75
50
25
0
2021

2022

Advanced economies

2021

2022

EMDEs

E. GDP gaps relative to pre-pandemic
projections

F. Probability distribution aroundglobal growth forecasts

Percent2

Percent
8

2020Q42021Q460

4-250 percent
80 percent
90 percent
Baseline

2
0

-4

-2

-6

of COVID-19, faster-than-expected pace ofvaccination in many advanced economies, andadditional fiscal relief in the United States.
U.S. output is rebounding particularly sharply,
fueled by substantial fiscal support, and it is now
expected to exceed its pre-pandemic projection by
the end of this year (figure 1.14.E). Growth inother major advanced economies is also firming,
albeit to a lesser extent due in part to theresurgence of COVID-19 caseloads. In China,
whose economy led the initial stages of therecovery last year, activity remains robust, but thepace of growth has moderated amid diminishedpolicy support.
Across most EMDEs, however, the recoveries
taking place will not be sufficient to erase thedamage from the pandemic, whose legacies are
expected to weigh on global activity for a
protracted period. Many countries will take a
prolonged period to regain their pre-COVID-19
levels of activity, and a return to pre-pandemic
output trends may become unattainable in theabsence of major reform efforts (World Bank
2020a; World Bank 2021a). The erosion of skills
from lost education and employment are likely to
reduce productivity, as will the smaller stock ofphysical capital resulting from last year’s sharp
decline in investment. Debt burdens and financial
vulnerabilities have risen in many parts of the
global economy, which will make the recovery
susceptible to financial market stress. This is
expected to be accompanied by a gradualwithdrawal of macroeconomic policy support overthe forecast horizon.

-4
United States AEs excl. U.S. EMDEs excl.
China

-6
2019

2020

2021

2022

Sources: Bloomberg; Consensus Economics; Oxford Economics; World Bank.
Note: AEs = advanced economies; EMDEs = emerging market and developing economies. Aggregate
growth rates are calculated using GDP weights at average 2010-19 prices and market exchange rates.
A.-C. Shaded area indicates forecasts.
A. Data for 2020 are estimates.
B. Figure shows the contribution of various countries and aggregates to growth of global GDP in 2021
and 2022 in the baseline forecast and average of 2015-19 period.
C. Figure shows contributions to global growth forecast for 2021 and 2022 compared to averagecontributions to growth in the 2015-19 period.
D. Figure shows the share of EMDEs and advanced economies with forecast upgrades, downgrades,and no forecast changes since January 2021 edition of the Global Economic Prospects report (WorldBank 2021a). Dashed yellow line indicates 50 percent threshold.
E. Deviation calculated as the percent difference between the level of current projections and January
2020 projections. Sample includes 28 advanced economies and 18 EMDEs.
F. Probabilities for the forecast distribution of global growth are generated using time-varying estimatesof the standard deviation and skewness extracted from the forecast distribution of oil price futures,
S&P 500 equity price futures, and term spread forecasts, as described in Ohnsorge, Stocker, andSome (2016). Values for 2022 are based on 18-month-ahead forecast distributions. Last observationfor S&P 500 and oil price futures is May 26, 2021, whereas term spread forecasts are from May 2021.

The evolution of the pandemic and the pace ofvaccination will be the most crucial factor driving
the outlook. The baseline assumes that progress at
vaccination will help to effectively contain
COVID-19 in advanced economies by the end of
the year, with most major EMDEs also making
substantial progress at reducing transmission. This
would allow most control measures in these
economies to be lifted, with a few—such as
restrictions on some international travel—being
maintained to minimize possible flare-ups linked
to new variants of COVID-19. In many other
EMDEs, vaccination campaigns will be ongoing
throughout the forecast horizon. The virus will

G LO BAL EC O NO MIC P ROS P EC TS | J U NE 2021

continue to disrupt activity to varying degrees, but
growth will still benefit from vaccine deployment
as well as spillovers from the rapid recovery inmajor economies.
Risks to the outlook
Forecasts of the pace of the global recovery are
subject to considerable uncertainty, especiallygiven the volatile nature of the pandemic (figure
1.14.F). Positive surprises to growth since theJanuary forecast suggest that risks to the outlook
have become more balanced; however, downside
risks to the near-term outlook continue topredominate.
On the downside, the pandemic could prove more
persistent than expected, a wave of corporatebankruptcies or financial market stress could derail
the recovery, and an unequal pickup in growth
could exacerbate social unrest in various parts of
the world. On the upside, more rapid vaccine
production—along
with
more
equitable
distribution—could lead to faster-than-expected
control of the pandemic; moreover, the current
upturn in growth, currently concentrated in somemajor economies, could lead to sizable spillovers
and trigger a broader and stronger global
economic recovery.
Downside risks
Continued COVID-19 flare-ups and newvariants
COVID-19 caseloads are likely to remain high inmany parts of the world, including in EMDEs
where vaccination progress has been slow, or LICs
where vaccinations have barely begun. Bottlenecks
in production, vaccine hoarding by somecountries, and logistical impediments could
continue to slow the pace of vaccine rollouts,
particularly in EMDEs. Within many countries, asubstantial share of the population is hesitant
about inoculation (figure 1.15.A). The continued
circulation of the virus in these places means thatcountries risk repeatedly cycling between making
progress in reducing COVID-19 caseloads andrelaxing restrictions, followed by the re-emergenceof the virus, triggering new lockdowns andrenewed declines in activity. The effectiveness of

CHAPTER 1

29

FIGURE 1.15 Downside risk: Continued COVID-19
flare-ups and new variants
The virus may continue to circulate in areas where populations are hesitant
about vaccination, and may mutate and re-emerge from these reservoirs.
The effectiveness of persistent pandemic control measures may be eroded
by “lockdown fatigue.”
A. Response to survey question about
willingness to be vaccinated

B. Impact of lockdowns on mobility
over time

Percent
60

Marginal impact, percent
0

45
30

-6

15
0
Definitely Probably
yes
yes

Probably Definitely
no
no

-12
Initial restrictions

Later restrictions

Sources: Delphi Group (database); Fan et al. (2021); Goldstein, Yeyati, and Sartorio (2021); WorldBank.
A. Bars indicate the share of responses to the question “If a vaccine to prevent COVID-19 were
offered to you today, would you choose to get vaccinated?”. Orange whiskers indicate interquartile
range across countries. Survey includes 3.9 million respondents in 114 countries. Data as of May
2021, last observation is May 15, 2021.
B. The graph represents the impact of a one standard deviation in the OxCGRT Stringency Index on
mobility after 40 days, with an interaction variable representing whether lockdowns had been in effectin the preceding 120 days, as estimated in Goldstein, Yeyati, and Sartorio (2021).

pandemic control measures is also likely being
progressively eroded by a rising degree of“lockdown fatigue” (figure 1.15.B).
In addition, COVID-19 has a demonstrated
ability to mutate. The appearance and spread of
new variants that are more transmissible or more
severe could significantly set back the fight against
the virus, as well as the economic recovery. The
emergence of new strains that are able to circulateeven within vaccinated or previously infected
populations could prove especially damaging. The
prevalence of virus variants in foreign countries
would encourage policy makers to maintainstringent travel restrictions, and further delay therecovery in economies dependent on international
tourism.
Financial market stress
Governments
andcorporations
amassedconsiderable debt as they weathered last year’s
global recession (figure 1.16.A-B). This followed adecade of rapidly accumulating debt after the
global financial crisis (Kose et al. 2021). Elevated30

G LO BAL EC O NO MIC P ROS P EC TS | J U NE 2021

CHAPTER 1

BOX 1.3 Recent developments and outlook for low-income countries
Following a sharp slowdown last year, growth among low-income countries (LICs) is expected to pick up to an average of 3.8
percent a year in 2021-22, still lower than its 2010-19 average pace and below January projections. Fragile and conflict-affected
LICs are expected to face a particularly dire outlook, with growth of 2.5 percent in 2021-22. In about 60 percent of LICs and75 percent of fragile and conflict-affected LICs, last year’s per capita income losses will not be fully unwound by 2022. Risks to
the growth outlook are tilted to the downside and include further impediments to widescale vaccinations, debt distress, worsening
food insecurity, and a rise in violence. With tens of millions of people expected to have slipped into extreme poverty last year, thelegacies of the pandemic are set to weigh on human and physical capital accumulation, income growth, and poverty reduction foryears to come.

Recent developments
In 2020, the COVID-19 pandemic pushed growth in lowincome countries (LICs) down to 0.7 percent—the slowest
pace in 27 years—with per capita income contracting by 2
percent. Activity has since picked up somewhat, aided bystronger activity in major trading partners and higher
commodity prices (figure B1.3.1.A-B). Nonetheless,growth continues to be held back by the ongoingpandemic and its legacies. Continued infections havedelayed the resumption of activity in some sectors,
particularly in those dependent on face-to-faceinteractions. The pace of vaccination has been extremely
slow in LICs, in part due to procurement hurdles andlimited financing. As of late May, only about 0.3 percentof the population in LICs has received at least one dose of
vaccine—a mere one-tenth of the share of the population
vaccinated in EMDEs and just one-hundredth of the sharein advanced economies.
Fragile and conflict-affected LICs have been hit thehardest by the pandemic, with GDP falling by an
estimated 1.2 percent in 2020 (Afghanistan, Eritrea, Haiti,
Liberia, Sudan). In per capita terms, output in thesecountries contracted by an estimated 3.8 percent last year,
setting back per capita income gains by at least a decade(World Bank 2021a). In some countries, the negative
effects of the pandemic were exacerbated by severe floods,
droughts, locust infestations, and rising insecurity(Afghanistan, Eritrea, Mali, Sudan).
Activity in other LICs also decelerated sharply last year,with GDP growth falling to a two-decade low of 2.7
percent, equivalent to zero per capita income growth. The
adverse effects of COVID-19 and related control measures
have disrupted exports, impeded consumption andinvestments, and eroded tourism revenues (Ethiopia,
Guinea, Rwanda).

Note: This section was prepared by Cedric Okou.

The evolution of sovereign borrowing costs has been
uneven among LICs. With still-benign global financing
conditions, sovereign bond yields have fallen back to prepandemic levels in some countries (figure B1.3.1.C). In
other LICs, however, sovereign borrowing costs haveremained elevated, reflecting investors’ concerns aboutpublic debt sustainability, subdued growth, and politicalrisk (Chad, Ethiopia, Mozambique). Fairly resilient
remittance inflows have partially cushioned householdincome losses (ILO 2021a).

Outlook
Activity in LICs is forecast to grow by 2.9 percent in
2021—the second slowest growth rate of the past 20 years
after that of 2020—and by 4.7 percent in 2022 (figure
B1.3.2.A; table B1.3.1). The projected rebound hinges onstronger demand from LICs’ trading partners—notably
China and the United States—higher commodity prices,and some progress at vaccination in LICs. Nonetheless,growth forecasts in 2021-22 have been downgraded by anaverage 0.6 percentage point, reflecting further delays invaccination campaigns; natural disasters such as floods,
droughts, and insect infestations; and rising geopoliticalrisks and conflicts. The group’s output level in 2022 is
projected to be 4.9 percent lower than pre-pandemic
projections, as the lingering adverse effects of thepandemic weigh on the recovery. The weakness of therebound implies that most LICs will make little progress
toward recovering to pre-pandemic output levels.
Firming metals and oil prices and strengthening global
activity are projected to support growth in industrial
commodity-exporting LICs (Central African Republic,
Guinea, Tajikistan) to 3.1 percent a year on average in
2021-22. Nevertheless, this pace will be 1.4 percentage
point lower than the 2010-19 average and 1.1 percentage
points below previous projections, as policy uncertainty,social tensions, and insecurity are expected to delay someinvestments in new production capacity in the extractive
sector (Chad, Mozambique, Niger). In commodity
importers (Eritrea, Haiti), activity is expected to stall, with

G LO BAL EC O NO MIC P ROS P EC TS | J U NE 2021

CHAPTER 1

BOX 1.3 Recent developments and outlook for low-income countries (continued)
FIGURE B1.3.1 Recent developments
Despite improved external conditions and relatively low infection rates, the pandemic and the very slow pace of vaccination
have inhibited the resumption of activity in low-income countries (LICs). Sovereign borrowing costs have increased in some
LICs.

3

May-21

0

Jan-21

0.0

Mar-21

6

Nov-20400

Sep-200.2

Jul-209

Apr-21

800

May-2012

0.4

Jan-21

Ethiopia
Mozambique
RwandaMar-201200

Percent
15

Jan-200.6

C. Sovereign borrowing costs inselected LICs
Total cases,(per 100,000)
1600

LICs
Fragile LICs
EMDEs (RHS)
LICs (RHS)

Oct-20

UnitedStates

21Q1

20Q4

20Q3

21Q1

20Q4

Euro Area

New cases(per 100,000)
0.8

Jul-20

China

20Q3

20Q4

20Q3

20
15
10
5
0
-5
-10
-15

21Q1

Quarterly GDP growth
Percent
GDP growth in 2021
Share of LIC exports (RHS)
25
20
15
10
5
0

Percent

B. COVID-19 infections in LICs

Apr-20A. GDP growth in major LIC trading
partners

Sources: Bloomberg; Haver Analytics; International Monetary Fund; Johns Hopkins University (database); World Bank
Note: EMDEs = emerging market and developing economies; Fragile LICs = fragile and conflict-affected LICs; LICs = low-income countries.
A. “Share of LIC exports” reflects goods exports.
B. Shows the seven-day moving average of daily new infections in Fragile LICs and LICs. Seven-day moving average of total number of infections in EMDEs and LICs
are on the right-hand side axis. Sample includes 147 EMDEs, 28 LICs, and 19 Fragile LICs. Last observation is May 25, 2021.
C. Data for Ethiopia, Mozambique, and Rwanda reflect the yields on 2024, 2031, and 2023 Eurobonds, respectively. Last observation is May 26, 2021.

essentially zero growth this year followed by 2.4 percent
growth in 2022.
In fragile and conflict-affected LICs (Afghanistan, Eritrea,
Sudan), the recovery is also expected to be subdued, withGDP growth reaching 1.7 percent in 2021 and firming to
3.4 percent in 2022. For this subset of LICs, the growthforecasts for 2021-22 will be 1.1 percentage point below
the 2010-19 average and 0.7 percentage point lower thanJanuary forecasts. Persistently weak growth reflects theongoing effects of COVID-19 compounded by the limited
administrative capacity of some governments, the highprevalence of extreme poverty, and exposure to frequent
natural disasters and violence (Corral et al. 2020).
In other LICs, the recovery is projected to be less subdued,with growth averaging 5 percent a year in 2021-22—still
0.4 percentage point below previous projections. Activity
in Ethiopia, the largest LIC, is forecast to expand by 4.2
percent a year in the near term amid geopolitical tensions.
In some countries, more stable political and businessenvironments are expected to support growth, including
by boosting private sector investment and reinvigorating
entrepreneurship (Rwanda, Togo).

Per capita GDP growth in LICs is expected to tick up
modestly, averaging 1 percent a year in 2021-22, after
falling by 2 percent last year (figure B1.3.2.B). As a resultof limited gains in per capita incomes, many of the tens of
millions of people projected to fall into extreme poverty
due to the pandemic will struggle to escape, as per capita
incomes in 2022 will be marginally lower, by 0.1 percent,than in 2019 (figure B1.3.2.C; World Bank 2020b).
Among LICs affected by fragility, conflict, and violence—
which already have a higher incidence of extreme
poverty—per capita income growth is forecast to contract
by 0.2 percent a year, on average, in 2021-22. In about
three-fifths of LICs and three-quarters of fragile andconflict-affected LICs, last year’s per capita income losses
will not be fully recouped by 2022. The weak recovery is
also unlikely to reverse the increase in inequality caused by
the outsized negative effects of the pandemic on women,children, and unskilled and informal workers (IMF
2021a).
After a steep increase last year, government debt in LICs is
projected to stabilize at 65 percent of GDP by 2022. As
the pandemic recedes and economic activity picks up, agradual unwinding of fiscal support could help slow

31

G LO BAL EC O NO MIC P ROS P EC TS | J U NE 2021

CHAPTER 1

BOX 1.3 Recent developments and outlook for low-income countries (continued)
FIGURE B1.3.2 Outlook
Growth in low-income countries (LICs) is projected to edge up after the sharpest growth slowdown in a generation last year.
The outlook is particularly challenging in fragile and conflict-affected LICs, as the adverse effects of the pandemic arecompounded by limited administrative capacity, widespread extreme poverty, natural disasters, and violence. Although per
capita incomes are expected to recover somewhat in 2021-22, this will only partially reverse the COVID-related per capita
income losses, leaving millions of people in extreme poverty.
A. GDP growth

B. GDP growth per capita

C. Poverty headcount and rate
Percent
Historical
Pre-COVID-19 projections
COVID-19 impact
42

Millions
300
290

41

280
40

270

Headcount

2021

2020

2019

2018

2017

2021

2020

2019

39

2018

260

2017

32

Poverty rate (RHS)

Sources: Mahler et al. (2021); World Bank; World Bank (2020b).
Note: Shaded area indicates forecasts. Fragile LICs = fragile and conflict-affected LICs; LICs = low-income countries.
A.B. Aggregate GDP growth rates calculated using constant GDP weights at average 2010-19 prices and market exchange rates. Aggregate per capita GDP growth
rates calculated using the total GDP for each subgroup divided by its total population. Sample comprises 25 LICs, which include 16 Fragile LICs.
C. Red line reflects the baseline projection for the impact of the pandemic on poverty headcounts and rates in LICs.

somewhat the build-up of government debt in some LICs
(The Gambia, Togo).

Risks
Downside risks to the outlook predominate. Morecontagious variants of COVID-19 could spread topopulous LICs and weaken the recovery if not quickly
contained (Democratic Republic of Congo, Ethiopia,
Uganda). Chronic impediments to vaccine delivery andadministration, alongside vaccine hesitancy could put
widescale vaccination out of reach for some time. The
COVAX facility could fail to receive adequate multilateraland bilateral financial and logistical support, causing
further delays in LIC vaccination campaigns, withparticularly outsized negative effects in tourism-reliant
countries (Ethiopia, Madagascar, Uganda).a
The pandemic has caused a deterioration in publicfinances and sharply increased debt service costs in somea. The COVAX facility is a multilateral initiative that aims at
assisting the poorest countries to secure equitable access to about 2 billion
vaccine doses by the end of 2021. It provides demand guarantees tovaccine manufacturers to encourage them to expand and accelerate theproduction of vaccine doses.

LICs, especially those that were already in financial stress(figure B1.3.3.A). Heightened sovereign debt sustainability
concerns may further raise borrowing costs, increase debt
burdens, exacerbate debt distress, and dampen the recovery
in some countries (World Bank 2020c).
Oil-exporting LICs are set to benefit from stronger oil
prices (Chad, South Sudan). However, higher oil prices
could prompt a rise in global oil supply—in particularfrom U.S. shale fields. The current OPEC+ production
cut agreement could fail, possibly leading to a sharp
increase in supply and weaker oil prices. If this happens,oil-exporting LICs could experience revenue shortfalls and,as a result, be forced to decide between growth-damaging
fiscal consolidation and risking financial stress. Lowerthan-assumed oil prices would, however, benefit net oil
importers.
Food insecurity continues to weigh on the livelihoods ofmore than 112 million people in LICs (figure B1.3.3.B;
FSIN 2021). Currency depreciations, localized supply
disruptions, and natural disasters have pushed foodprice inflation well above pre-pandemic rates in some
LICs, and many households are set to suffer real income
losses and lower food consumption (Afghanistan, Ethiopia,

G LO BAL EC O NO MIC P ROS P EC TS | J U NE 2021

CHAPTER 1

BOX 1.3 Recent developments and outlook for low-income countries (continued)
TABLE B1.3.1 Low-income country forecasts a

Percentage point
differences from January
2021 projections(Real GDP growth at market prices in percent, unless indicated otherwise)

2018

2019

2020e

2021f

2022f

2023f

2021f

2022f

4.7

4.3

0.7

2.9

4.7

5.6

-0.5

-0.7

Afghanistan

1.2

3.9

-1.9

1.0

2.6

3.0

-1.5

-0.7

Burkina Faso

6.7

5.7

0.6

3.1

5.0

5.7

0.7

0.3

Burundi

1.6

1.8

0.3

2.0

2.5

3.0

0.0

0.0

Central African Republic

3.7

3.1

0.0

0.7

2.8

4.4

-2.5

-1.3

Chad

2.4

3.2

-0.9

1.0

2.5

2.9

-1.4

-0.8

Congo, Dem. Rep.

5.8

4.4

0.8

2.5

3.0

4.1

0.4

0.0

Low-Income Country, GDPb

Eritrea

13.0

3.7

-0.6

2.0

4.9

3.8

-1.5

-0.6

Ethiopia c

6.8

8.4

6.1

2.3

6.0

7.5

2.3

-2.7

Gambia, The

7.2

6.1

0.0

3.5

5.5

7.0

0.4

0.2

Guinea

6.2

5.6

4.7

5.5

5.2

5.2

0.0

0.0

Guinea-Bissau

3.8

4.6

-2.4

3.0

4.0

5.0

0.0

0.0

Haiti c

1.7

-1.7

-3.3

-0.5

1.5

2.0

-1.9

0.0

Liberia

1.2

-2.3

-2.9

3.3

4.2

4.7

0.1

0.3

Madagascar

4.6

4.9

-4.2

2.0

5.8

5.4

0.0

0.0

Malawi

4.4

5.4

0.8

2.8

3.0

4.5

-0.5

-1.9

Mali

4.7

4.8

-2.0

2.5

5.2

5.0

0.0

0.0

Mozambique

3.4

2.3

-1.3

1.7

4.1

6.3

-1.1

-0.3

Niger

7.2

5.9

0.8

4.7

8.9

12.1

-0.4

-2.9

Rwanda

8.6

9.4

-3.3

4.9

6.4

7.5

-0.8

-0.4

Sierra Leone

3.4

5.5

-2.2

3.0

3.7

4.0

-1.1

-0.9

South Sudan c

-3.5

-0.3

9.5

-3.4

1.5

3.0

0.0

1.5

Sudan

-2.3

-2.5

-3.6

0.4

1.1

2.6

-2.1

-2.0

Tajikistan

7.6

7.4

4.5

5.3

5.6

6.0

1.8

0.1

Togo

4.9

5.3

0.7

3.4

4.6

5.0

0.4

0.1

6.3

6.4

3.0

3.3

4.7

6.4

0.5

-1.2

d

Uganda c

Source: World Bank.
Note: e = estimate; f = forecast. World Bank forecasts are frequently updated based on new information and changing (global) circumstances. Consequently,
projections presented here may differ from those contained in other Bank documents, even if basic assessments of countries’ prospects do not significantly differ at any
given moment in time.
a. The Democratic People’s Republic of Korea, Somalia, the Syrian Arab Republic, and the Republic of Yemen are not forecast due to data limitations.
b. Aggregate growth rates are calculated using GDP weights at average 2010-19 prices and market exchange rates.
c. GDP growth based on fiscal year data. For South Sudan, the year 2019 refers to FY2018/19.
d. For Togo, growth figures in 2018 and 2019 are based on pre-2020 rebasing GDP estimates.

Mozambique, Rwanda, Tajikistan, chapter 4). Absent
additional aid, acute hunger and poverty could soar incountries where the prevalence of extreme poverty isalready highest, particularly in those grappling withfragility or conflict situations (UNFAO 2021; World Bank
2021e).

Rising violence against civilians threatens growth prospects
in some LICs (figure B1.3.3.C). Insurgencies in the Saheland political tensions in some countries are taking a heavy
humanitarian and economic toll on the most vulnerable
populations and exacerbating the negative effects of
COVID-19.

33

34

CHAPTER 1

G LO BAL EC O NO MIC P ROS P EC TS | J U NE 2021

BOX 1.3 Recent developments and outlook for low-income countries (continued)
FIGURE B1.3.3 Risks
In addition to further impediments to vaccination, elevated sovereign debt costs and food insecurity continue to cloud theoutlook in low-income countries (LICs). Rising violence against civilians could also jeopardize the recovery.
A. Debt service costs in LICs, by risk ofdebt distress

B. Food insecurity in LICs
Millions
200

LICs

C. Violence against civilians
Percent
40

EMDEs

Number of events, thousands
20
SSA
MNA

150

30

15

100

20

10

50

10

0

SAR

Other

2020

2021

5

0
Number of people
in food crisis

Population
share (RHS)

0
2018

2019

Sources: Armed Conflict Location & Event Data Project (ACLED), https://www.acleddata.com; FSIN and Global Network Against Food Crises; International Monetary
Fund; World Bank.
Note: Shaded area indicates forecasts. EMDEs = emerging market and developing economies; LICs = low-income countries.
A. Aggregates represent external debt service payments of the general government sector as a share of current GDP.
B. “Number of people in food crisis” reflects those classified as Integrated Food Security Phase Classification (IPC/CH) Phase 3, i.e., in acute food insecurity crisis or
worse, in 2019-20. “Population share” reflects the sample median. Whiskers reflect the interquartile range. Sample includes 55 EMDEs and 25 LICs.
C. Number of acts of violence against civilians. Last observation is May 21, 2021. Values in 2021 are estimated.

debt levels and the resultant vulnerability to higher
financing costs have contributed to credit
downgrades for nearly 40 percent of EMDEs since
the beginning of 2020 (Barnes, Casey, and Jordan-Doak 2021; Reinhart et al. 2021).
In an environment of elevated debt, financial
stress can be triggered by any of a number ofshocks that increase borrowing costs (Rogoff
2021). Significant fiscal support could lead to
rapidly rising inflation and monetary tightening insome major advanced economies, with importantinternational spillover effects (Kose et al. 2017;
box 1.1). For example, in the past, U.S. monetary
tightening has often contributed to currency
depreciation in EMDEs, followed by domestic
monetary tightening and, in some countries,
financial turmoil (figure 1.16.C; Arteta et al.
2015).
Alternatively, in some countries there is a risk thatthe recent acceleration in inflation due tocommodity price increases and currency depreciation could de-anchor inflation expectations(figure 1.16.D). Especially for those countries thathave borrowed heavily in foreign currency, thathave substantial upcoming redemptions that need
to be rolled over, or that have limited foreignexchange reserves, a sustained pickup in inflation
would drive further depreciation, exacerbating
currency mismatches, and could result insignificant outflows of the volatile portfolio flowsthat are often used to finance current accountdeficits (chapter 4). As has been shown in the past,
several vulnerabilities in a country can interact tobecome severe conglomerate crises, and financing
difficulties in one country can cause contagion andtrigger broad-based financial crises as investors
move capital to safe havens (Devereux andChanghua 2020; Reinhart 2021).
Corporate defaults and deleveraging
In many countries, government support programs
were successful in limiting the number ofcompanies that failed during the pandemic. A
combination of loan guarantees, payment
moratoria, monetary easing, and regulatory

G LO BAL EC O NO MIC P ROS P EC TS | J U NE 2021

FIGURE 1.16 Downside risk: Financial market stress
Governments and corporations amassed considerable debt as they
weathered last year’s global recession. In the past, large currency
depreciation in emerging market and developing economies (EMDEs) has
often led central banks to tighten monetary policy, regardless of thestrength of the domestic economy. Currency depreciation and the recent
rise in energy and input prices could also de-anchor inflation expectations
and trigger destabilizing capital outflows in some countries.
A. Cumulative change in government
debt in EMDEs

B. Cumulative change in nonfinancial
corporations’ debt in EMDEs

Percent of GDP
10

Percent of GDP
6

COVID-19

GFC

6

A wave of corporate defaults could trigger banking
crises,particularlyincountries
whererecapitalization by the government may not be
possible because of already-strained fiscal
positions. The interlinkages between public andprivate balance sheets have tightened in many
countries as a result of pandemic relief programs,suggesting that banking crises could also be
triggered by sovereign weakness. Even if a fullfledged banking crisis is averted, a persistently
weak banking system would reduce credit
availability, hindering the ability of firms tofinance investment once demand picks up. This
would be particularly damaging for small- andmedium-sized enterprises, which have beendisproportionately damaged by the pandemic andrely heavily on the banking system for credit (Diezet al. 2021; Gourinchas et al. 2021). At theaggregate level, attempts at deleveraging can fail togain traction as efforts to reduce debt arehampered by weak nominal output growth.

GFC

4

4
2

2

0
0

-2
1

2

3

4
5
Quarters

6

7

1

8

2

3

4
5
Quarters

6

C. EMDE policy rates after large
depreciations

D. Input, output, and oil prices

Basis points

Index, 50+ = expansion
Input prices
65
Output prices
Oil price (RHS)
60

30

20

7

8

Index, 100 = 2019
120
100
80

55

60
50

6m

0
Apr-213m

Jan-211m

2040
Oct-2004045Jul-2010

Apr-20

The global banking system entered the pandemic
with substantial capital buffers and has proved
resilient during the downturn (IMF 2021b).
Many indicators of banking health appear
robust—for example, the average share of nonperforming loans (NPLs) in many countries’
financial systems has declined during the
pandemic (figure 1.17.B). Nonetheless, theapparent strength of many banks may beoverstated by pandemic-related relaxations of theregulations surrounding loan classification andprovisioning (Alonso Gispert et al. 2020). If
bankruptcies rise as support policies are phased
out, bank balance sheets could quickly become
impaired.

COVID-19

8

Jan-20forbearance helped maintain liquidity during aperiod of plunging sales revenues. It also helped
lower the number of bankruptcies below thoseseen during the global financial crisis (figure
1.17.A; Banerjee, Noss, and Vidal Pastor 2021).
As these programs are gradually withdrawn, major
corporate solvency crises may emerge, especially inthose countries where corporate indebtedness ishigh and weak recoveries reduce profits, or inthose with a high proportion of “zombie” firms
dependent on low interest rates (Helmersson et al.
2021).

35

CHAPTER 1

Sources: Haver Analytics; Institute of International Finance; World Bank.
Note: EMDEs = emerging market and developing economies; GFC = global financial crisis.
A.B. Figures show the cumulative change in debt since the start of the episode, which is 2008Q3 for
GFC and 2020Q1 for COVID-19. Sample includes 25 EMDEs, excluding China.
C. Bars show estimated impact of a 10-percent monthly currency depreciation at t = 0 on EMDE
policy rates at t+1, t+3, and t+6 months horizons using a local projections model. Orange whiskers
indicate 90 percent confidence intervals. Sample includes 33 EMDEs with floating or free-floatingexchange rates.
D. Figure shows the composite Purchasing Managers’ Index (PMI) for input and output prices. PMI
readings above 50 indicate expansion in economic activity; readings below 50 indicate contraction.
Last observation is April 2021.

Region-specific downside risks
The global recession impacted some regions andgroups harder than others, and the global recovery
is leaving many behind. Weak and unequal
growth or policy missteps could worsen the social
discontent already seen in some countries inregions such as EAP, ECA, and LAC. Somegovernments may address fiscal deficits throughausterity measures that reduce support tovulnerable groups. Climate-related events cancause large economic losses (Fernando, Liu, and36

CHAPTER 1

G LO BAL EC O NO MIC P ROS P EC TS | J U NE 2021

FIGURE 1.17 Downside risk: Corporate defaults anddeleveraging
Government support programs were successful at averting a rise inbankruptcies such as that which occurred during the global financial crisis,but many of these programs are being withdrawn. Although the global
financial system appears to be healthy, as suggested by declining sharesof nonperforming loans in many countries, risks may be obscured byregulatory forbearance in many countries.
A. Evolution of bankruptcies inadvanced economies during GFC andpandemic

B. Nonperforming loans as a share of
total, cumulative change relative to
2019Q1

Index, 100 = t-1
140Percentage point
Advanced economies
0.0

COVID-19

GFC

120

EMDEs

Many countries are experiencing a sharp rise infood prices, which account for about one-third of
the consumption basket in EMDEs, on average,
and close to half in some countries. A sustained
rise in food prices would exacerbate foodinsecurity, erode real incomes, and potentiallycontribute to more widespread malnutrition. Oil
supplies may increase suddenly if OPEC+ changes
course, or if U.S. shale operators ramp up
production. This could lead to a sharp fall in oil
prices that could cause difficulties in many oilexporting countries, including those concentrated
in MENA and SSA.

-0.2

100

Upside risks

-0.4

80

2020Q4

2020Q3

2020Q2

2020Q1

2019Q4t+1 t+2 t+3 t+4

2019Q3t

2019Q2t-4 t-3 t-2 t-1

2019Q1-0.6

60

Sources: Bloomberg; European Banking Authority; European Central Bank; Federal Deposit
Insurance Corporation; International Monetary Fund; Organisation for Economic Co-operation andDevelopment; World Bank.
Note: EMDEs = emerging market and developing economies; GFC = global financial crisis.
A. Figure shows the median index of bankruptcies for 10 advanced economies. “t” is 2008Q1 for the
GFC and 2020Q1 for COVID-19.
B. Figure shows unweighted averages for 22 advanced economies and 33 EMDEs with available
data.

McKibbin 2021). These are likely to become
increasingly frequent if climate change abatementtargets are not met, also often have adisproportionate impact on the poor and risk
further magnifying social inequality. For example,
the storms that affect small island states in EAP
and LAC generally do more damage to the lesswell-built and uninsured houses of the poor, anddroughts in ECA and SAR weigh heavily on
subsistence farmers.
Geopolitical tensions remain elevated in regions
such as ECA, MENA, and SSA, which facesimmering conflicts that could escalate. Conflictand disasters displace millions of people every
year, which could result in waves of refugees thatexacerbate political tensions or have destabilizing
economic effects in neighboring countries (IDMC2021). In addition, all economies are vulnerable tocyber-attacks, which could affect key infrastructure such as power grids, financial systems, or
telecommunications networks.

Rapid end of the pandemic at the global level
Vaccine rollouts at the global level, while unequal,
have proceeded somewhat more quickly than
anticipated at the beginning of the year (figure
1.18.A). At least 10 separate manufacturers haveset production targets of more than 1 billion
vaccines each by the end of the year (Wouters etal. 2021). If vaccine-makers’ projections proveaccurate, the world will have almost 13 billion
doses available by December, more than enoughto fully inoculate about 80 percent of the world’s
population (figure 1.18.B; Duke Global HealthInnovation Center 2021). Temporary waivers on
intellectual property protections for COVID-19
vaccines could allow for additional manufacturers
to enter the market, further acceleratingproduction.
As domestic supplies exceed demand in countries
where vaccination is proceeding rapidly, some
excess vaccines will be channeled abroad,accelerating progress in lagging countries. Unless
distribution and demand challenges hinder
progress, increased vaccine production could resultin more rapid and globally equitable vaccination
distribution and remove the need for stringent
control measures. Accelerated COVID-19 vaccination is likely to have economic benefits thatheavily outweigh its costs (Gagnon, Kamin, andKearns 2021). A rapid, effective, and global
containment of COVID-19 would strengthen themedium-term global recovery and make it subject
to fewer setbacks.

G LO BAL EC O NO MIC P ROS P EC TS | J U NE 2021

Other

Novavax

Moderna

SinopharmMay-21

Apr-21

J&J

Vaccine production, billions
14
12
10
8
6
4
2
0
Sinovac

Effective vaccinations per hundred people
14
January 2021 baseline assumptions
12
Latest data
10
8
6
4
2
0

AstraZeneca

B. Vaccine production targets for 2021

Pfizer

A. Pace of vaccination compared to
January assumptions

Mar-21

A stronger, more durable, and more broad-based
global upturn would reduce the scarring caused by
the pandemic. A more robust labor market would
attract a greater share of discouraged workers backto the labor force. Faster growth would propel therecovery in investment above the baseline forecast.
The need to meet surging demand could also
encourage faster adoption of new technologies,
particularly in the services sector as companies
invest in the digital remote service practices
pioneered during the pandemic (McKinsey Global
Institute 2021). Stronger potential output growthwould help keep inflation pressures in check andhelp reduce debt ratios. A more broad-based
recovery would also likely be more inclusive, witha greater reach to those vulnerable groups thathave been most affected by the crisis, and thus
help move a larger number of people out ofpoverty.

The pace of vaccine rollout at the global level, while highly unequal, has
exceeded expectations. Vaccine makers have committed to producing
almost 13 billion doses by the end of the year, enough to fully inoculate
most of the world if distribution issues can be resolved and vaccine accessbecomes more equitable.

Feb-21

The global recovery is now being driven by theUnited States and a few other major economies. It
is possible that spillovers from activity in these
economies help to undam a large reserve of pentup demand, bolster confidence, and catalyze asynchronized and self-sustaining boom that pushes
global activity above baseline forecasts, even if
outbreaks persist in some EMDEs (figure 1.19.AB; box 1.1).

FIGURE 1.18 Upside risk: Rapid end of the pandemic at
the global levelJan-21

Sustained, broad-based global upturn

37

CHAPTER 1

Sources: Duke Global Health Innovation Center (2021); Guénette and Yamazaki (2021); Our World in
Data (database); World Bank.
A. Figure shows the average seven-day moving average of effective daily COVID-19 vaccinations
administered per hundred people across the Group of Seven (G7) member countries which include
Canada, France, Germany, Italy, Japan, the United Kingdom, and the United States and theEmerging Seven (EM7) member countries including China, India, Brazil, Mexico, the RussianFederation, Indonesia, and Turkey. As in Guénette and Yamazaki (2021), effective vaccinations arecomputed by multiplying the total number of vaccinations by 0.5 to account for multi-dose vaccinesand by 0.85 to account for imperfect vaccine effectiveness. Baseline assumption is for advanced
economies and major EMDEs as described in box 1.4 of the January 2021 edition of the Global
Economic Prospects report (World Bank 2021a). Last observation is May 25, 2021.
B. Global planned vaccine production in 2021. "Other" includes CanSino Biologics, COVAXX United
Biomedical, Gamaleya, CureVac, Bharat Biotech, Valneva, Inovio, Zydus Cadila, Medicago, andVector Institute. Data are as of May 25, 2021.

FIGURE 1.19 Upside risk: Sustained, broad-based global
upturnA stronger, more durable, and more broad-based global upturn would help
reduce the scarring caused by the pandemic. Spillovers from faster growth
in major economies would increase growth elsewhere.

Policy challenges
Globally-coordinated efforts are essential to secure
equitable vaccine distribution and far-reaching debt
relief, particularly for low-income countries. As thehealth crisis abates, policy actions will be needed toaddress the adverse legacies of the pandemic,
including high debt and weak productivity growth.
This will require a difficult balancing act as policy
makers seek to nurture the recovery whilesafeguarding macroeconomic stability. Policies tofacilitate employment in high-growth sectors, protect
vulnerable groups, and reduce trade costs—combinedwith increased investments in education, connectivity, and green infrastructure—will be needed tobolster growth prospects and steer the recovery onto agreen, resilient, and inclusive development path.

A. Response of growth in EMDEs excl.
China to 1-percentage-point higher
growth in major economies

B. GDP growth in 2022 in baseline andupside scenario

Percent
1.2

Percent
8

Baseline

Upside scenario

6
0.8
4
0.4

2
0

0.0
UnitedStates

Euro
area

China

Advanced
economies

EMDEs

World

Sources: Oxford Economics; World Bank.
Note: EMDEs = emerging market and developing economies.
A. Figure shows impulse response of growth in EMDEs excluding China after one year to a 1percentage-point growth acceleration in the United States, the euro area, or China. Estimates are
based on the methodology in World Bank (2020a).
B. Bars show baseline data from Global Economic Prospects June 2021 database. Orange markers
reflect growth in the “sustained boom” scenario from Oxford Global Economic Model simulations.

38

CHAPTER 1

Key global challenges
Ending the COVID-19 pandemic will require a
global deployment of vaccines. Accelerating thepace of vaccinations will require policy makers tobolster public trust in vaccine safety and workwith the private sector to improve the production
and distribution of vaccines. International support
is also critical to hastening global control of thevirus by providing vaccines to EMDEs and LICs
where availability is limited. Global initiatives,
including COVAX, can redistribute excess vaccine
doses and ensure more equitable access to vaccine
supplies (Gavi 2021). Until widespread
vaccination is achieved, growth-friendly control
measures—including universal masking, social
distancing, and test and trace strategies—are
needed to help contain domestic flare-ups,
including those resulting from the spread of new
virus strains (Prettner et al. 2021).
In addition, health systems must be strengthened
to confront the lingering health consequences ofthe pandemic, including chronic COVID-19
symptoms and delayed treatment of otherconditions.
Increasing
globalpandemic
preparedness can also help reduce the risk of
future global health crises. Moreover, it is essential
to avoid the lure of protectionism in favor of arules-based international trade regime thatsafeguards global supply chains for vaccines andother essential traded goods.
Sustaining the global recovery and tackling themany legacies from the pandemic will necessitateclose cooperation across governments, multilateralorganizations, and the private sector. For instance,
the collective benefits of exceptional fiscal andmonetary policy support measures are more likely
to be sustained if their eventual withdrawal iscarefully coordinated (Yoshino et al. 2020).
International cooperation can play an importantrole in helping poorer countries address liquidity
and solvency issues through interventions thatmobilize development finance, as well as spur thedesign of government credit guarantees, helping toalleviate financing constraints in EMDEs withfragile banking systems. For LICs facing very large
debt burdens, far-reaching and globallycoordinated debt relief efforts involving all
creditors will be needed to address long-term debt

G LO BAL EC O NO MIC P ROS P EC TS | J U NE 2021

sustainability challenges (Malpass 2021). At thesame time, global cooperation can be instrumental
in facilitating the transformational investments inagriculture, transportation, and energy systems
needed to entrench a green recovery, reduce global
emissions, and ultimately tackle the long-term
challenge of climate change.
Challenges in advanced economies
Continued support from monetary and fiscal
policy will be needed to ensure a durable recovery
in the short term. As the pandemic abates, agradual normalization of macroeconomic policy
will be required to achieve price stability andpublic debt sustainability. Reforms will be alsoneeded to foster green, resilient, and inclusive
growth. These include facilitating the reallocationof labor across sectors and harnessing theaccelerated pace of technological adoption broughton by the pandemic. They also include expanded
green infrastructure and proper carbon tax policy,
which would accelerate a low-carbon transition.
Monetary and financial policies
Inflation pressures are appearing earlier than was
the case following the global financial crisis, due toan increase in commodity prices and global supply
bottlenecks (figure 1.20.A; chapter 4). Still, mostadvanced economies are in the early stages ofrecovery and face the prospect of sizable excess
supply (figure 1.20.B). A continued high degree ofmonetary accommodation will therefore be
essential to cementing a strong recovery. In the
United States, however, the Federal Reserve’s
intention to keep policy rates near zero for a
prolonged period may be tested by a rapidly
narrowing negative output gap and the possibility
that additional fiscal support, coupled with
continued reopening, leads to unexpectedly strong
domestic demand. Effective communication withmarket participants will continue to be crucial toensure that the eventual withdrawal of monetary
policy support does not trigger undue volatility infinancial markets.
In most advanced economies, authorities will needto carefully manage the unwinding of debt andpayment moratoria, especially given elevatednonfinancial corporate debt levels (figure 1.20.C).

G LO BAL EC O NO MIC P ROS P EC TS | J U NE 2021

Fiscal policy
The historically sharp and ongoing rise ofsovereign debt levels highlights the need to use
fiscal support wisely and efficiently (figure
1.20.D). Providing continued support to thenascent recovery remains the near-term priority ofadvanced-economy fiscal authorities, although at
this stage in the crisis fiscal support can be morenarrowly targeted. For example, focusing support
on hard-hit vulnerable populations, such as theunemployed and lower-income families withchildren, would have a greater macroeconomic
impact given their higher marginal propensities to
consume (Klein and Smith 2021; Wilson 2020).
In economies already experiencing a rapid
recovery, such as the United States, additional
fiscal support, over and above historically large
increases in spending, would need to be employed
efficiently and weighed carefully against its
potential consequences for inflation and long-term
debt sustainability (figure 1.20.E-F; Furman andSummers 2020). Although the near-term growth
impacts of infrastructure investments may belimited, they can be particularly useful ingenerating long-run economic benefits (Ramey2020). In the euro area, enhanced coordination ofnational fiscal relief measures across member
countries can help strengthen the recovery andreduce trade imbalances (Aussilloux et al. 2021).
Although record-high public debt and fiscal deficit
ratios among advanced economies do not pose an
imminent threat given currently low interest rates,
there will soon be a need to rebuild fiscal space

39

FIGURE 1.20 Monetary, financial, and fiscal policies inadvanced economies
Inflation pressures are appearing earlier than at a similar time during therecovery that followed the global financial crisis. Nonetheless, they may not
persist outside of the United States, as most advanced economies facesubstantial excess supply. Nonfinancial corporate debt levels have risen
above their global financial crisis average. Moreover, the historically large
increase in sovereign debt levels highlights the need to use fiscal support
efficiently.
A. Inflation pressures in advanced
economies

B. Output gaps and deviations of
output from pre-pandemic projections

70

Input price index (COVID-19)
Percent
Input price index (GFC)
4Core inflation (COVID-19, RHS)
Core inflation (GFC, RHS)

60

3

50

2

40

1

30

0

Index

Percent
2.5

Percent of GDP
Pre-pandemic deviation
Output gap (RHS)

2.5

0.0

0.0

-2.5

-2.5

-5.0
t-1
t
t+1
t+2
t+3
t+4
t+5
t+6
t+7
t+8
t+9
t+10
t+11
t+12
t+13

Although the level of nonperforming bank loans ismuch lower than it was during the global financial
crisis, it will likely rise once forbearance policies
are allowed to expire. The risk of insolvency has
also increased for small- and medium-sizedenterprises with limited means to raise new capital(Gourinchas et al. 2021). Therefore, it would be
important to proactively improve a menu ofpolicies to safeguard the health of the banking
system, including debt restructuring, asset
separation, and recapitalization that could be used
to facilitate an early resolution of corporate andhousehold insolvencies (Beck, Carletti, and Bruno
2021; Boot et al. 2021; Diez et al. 2021).

CHAPTER 1

C. Nonfinancial corporate leverage
Percent of GDP-5.0
UnitedStatesOther
AEs

2020Q4

UnitedStatesOther
AEs

2021Q4

D. Gross government debt to GDP

AE average (COVID-19)
AE average (GFC)
United States (COVID-19)
United States (GFC)

140
120
100
80
60
t-2

t-1

t

t+1

t+2

t+3

t+4 t+5

E. Fiscal support in the United Statesand euro area
Percent of GDP
30

COVID-19

F. General government balance in the
United States and euro area

GFC

25
20
15
10
5
0
United States

Euro area

Sources: Congressional Budget Office; Haver Analytics; International Monetary Fund; Oxford
Economics; World Bank.
Note: AE = advanced economies; GFC = global financial crisis.
A. Solid lines show 3-month moving average of the Purchasing Managers’ Index (PMI) composite
input price index for Developed Markets. PMI readings above (below) 50 indicate expansion(contraction) in economic activity. Dotted lines show median year-over-year core inflation rate for 29
advanced economies. “t” refers to November 2008 for GFC and March 2020 for COVID-19. Lastobservation is April 2021.
B. Deviation is percent change in real GDP levels between current projections and January 2020
vintage as pre-pandemic estimate. Other AEs calculated using GDP weights at average 2010-19
prices and market exchange rates. Sample includes 25 advanced economies.
C. "t" refers to 2020Q1 for COVID-19 and 2008Q3 for global financial crisis.
D. Average of 25 advanced economies. Recent data are estimates by Oxford Economics. Shaded
areas are global financial crisis and COVID-19 pandemic. Last observation is 2021Q1.
E. COVID-19 fiscal support is “above the line” measures as compiled by the International Monetary
Fund. COVID-19 fiscal support in euro area includes measures announced by euro area member
countries and the European Commission.
F. Figure shows percent of nominal GDP. Shaded area over 2021-2025 indicates projections from theCongressional Budget Office (for the United States) and the International Monetary Fund (for euroarea).

40

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G LO BAL EC O NO MIC P ROS P EC TS | J U NE 2021

FIGURE 1.21 Structural policies in advanced economies
In contrast to the global financial crisis, the COVID-19 recession caused acollapse of activity and employment in the services sector. Policies tofacilitate employment of displaced workers are needed as many jobs insectors adversely affected by the pandemic can be automated.
A. Change in employment in 2020, bysectorB. Potential for automation acrossindustries in the United States

Percent0

Percent of current task content
75

Total

-5

Total

50

-10
25

Profes.
services

Info.

Health
care

Agri.

Manu.

0
Food
services

HealthConstruction

Education

Transport &Communication

Manufacturing

Trade

Hotels &Catering-15

Sources: Muro et al. (2019); Oxford Economics; World Bank.
A. Aggregates calculated using GDP weights at average 2010-19 prices and market exchange rates.
Unbalanced sample includes 33 advanced economies.
B. Figure shows the automation potential for specific industry groups in the United States aspresented in Muro et al. (2019). Food services = accommodation and food services, Manu. =manufacturing, Agri. = agriculture, forestry, fishing and hunting, Health care = health care and social
assistance, Info. = Information, and Profes. services = professional, scientific, and technical services.

and ensure medium-term debt sustainability(Bartsch et al. 2020). Achieving these goals will be
more likely if early action is taken to establish
credible medium-term fiscal plans and develop
carefully calibrated consolidation strategies. These
efforts can be complemented with comprehensive
reform of tax and social security systems (Orszag,
Rubin and Stiglitz 2021).
Structural policies
In advanced economies, the pandemic has caused
far greater disruption to output and employment
in services sectors than the global financial crisis(figure 1.21.A). A comprehensive set of labormarket policies can strengthen the recovery andaccelerate an appropriate reallocation of laboracross sectors. In particular, policies to facilitate
employment of displaced workers—notably
women and young workers—are crucial given thatmany of the occupations in the hardest-hit sectors
are highly susceptible to automation (figure
1.21.B; Albanesi and Kim 2021; HallwardDriemeier and Nayyar 2018). Policy makers canconsider expanding worker retraining opportunities and increasing social protection funded bya broader and more progressive tax structure(Sedik and Yoo 2021). Education systems can also
be improved to counter pandemic-related learning
losses, particularly in vulnerable populations (Roseet al. 2021).
In contrast to the global financial crisis,
productivity and output growth are likely torebound in the near term, at least temporarily, as
pandemic restrictions on activity and mobility arelifted (Bloom et al. 2021). Policy efforts will beneeded to sustain this recovery, especially throughcementing rapid gains in digitalization. For
instance, providing a secure and fast digitalcommunications environment, coupled withregulatory reforms, can harness the flexibility andproductivity inherent in allowing workers to work
remotely (Barrero, Bloom, and Davis 2021;
Morikawa 2021). Behavioral change in favor of
digital services and telecommuting stemming fromthe pandemic may exacerbate inequalities acrossfirms and households. Policies that enhance theaccessibility of financial and public services,support small- and medium-sized enterprises, andpromote research and development are essential(OECD 2021a).
Fostering green, resilient, and inclusive growth isalso a key policy priority. Government authorities
can engage the private sector to increase theeconomy’s resilience to climate change, working
together to accelerate a low-carbon transition,
strengthen biodiversity, and enhance environmental health (Disparte 2021; OECD 2021b).
Implementing carbon taxes can help reduce
harmful emissions and better align incentives witheconomic objectives, while raising the revenues
required to fund green investments, strengthensocial safety nets, and improve long-run debt
sustainability (IMF 2019; OECD 2020).
Challenges in emerging market anddeveloping economies
As the health emergency abates, EMDE policy
makers need to cement a durable, resilient, andinclusive recovery while tackling the pandemic’s
longer-lasting and harmful legacies. Millions of
lives and livelihoods have been lost, progress atpoverty reduction has been reversed, and thepolicy space available to support growth has beeneroded. Emerging inflation pressures mean that

G LO BAL EC O NO MIC P ROS P EC TS | J U NE 2021

some central banks will have to balance the needto support the economic recovery against risks toprice stability (chapter 4). The deterioration of
fiscal positions and record-high levels of debt inmany countries have heightened financial
vulnerabilities and may force a premature removalof fiscal support.
These challenges highlight the need to pursue
policies that help rebuild fiscal space without
unduly weighing on growth. Such policies include
efforts to improve spending efficiency and tobetter target social protection measures. As therecovery gains traction, these policies can becomplemented with those that bolster domestic
revenue mobilization. Over the longer term,
entrenching a green, resilient, and inclusive
recovery amid reduced fiscal space will requirepolicies that prioritize raising long-run growthprospects. These include helping workers
transition to high-growth sectors while protecting
vulnerable groups, raising human capital,
increasing access to digital connectivity, reducing
trade costs, and spurring green investments.
Policy challenges in China
Although China’s recovery from COVID-19
is becoming more broad-based, the public
investment-led support measures to confront the
pandemic-induced downturn have disrupted
progress at rebalancing aggregate demand toward
domestic consumption. Corporate and household
debt levels, which were already high before thepandemic, have risen further, eroding previous
deleveraging gains and increasing ﬁnancial stability
risks.
As authorities resume de-risking and deleveraging,
they may need to avoid premature policy
tightening until private domestic demandstrengthens further. Improving insolvency andbank resolution frameworks would facilitate anorderly exit of weak or failing corporates andbanks and free up resources for more productive
activities.
After this year’s cyclical rebound, China’s
economy is projected to slow over the medium
term, reﬂecting the legacies of excessive borrowing
as well as structural trends, including declining
labor supply and softening productivity growth.

CHAPTER 1

To bolster potential growth, China needs topursue structural reforms that boost market-based
resource allocation toward more productive
activities (World Bank 2020d; World Bank 2021f).
EMDE monetary and financial policies
Average core inflation in EMDEs has ticked up toslightly above pre-pandemic levels, with a more
pronounced increase in countries that experienced
depreciations (figure 1.22.A-B). Headline inflation
has also increased due to rising energy prices and,particularly in LICs, food prices. Model-based
forecasts and inflation expectations point to anincrease in inflation in 2021 that will exceed target
ranges in about one-half of inflation-targeting
EMDEs (chapter 4; figure 1.22.C).
EMDEs have generally maintained their
expansionary monetary stance, supported bycontinued benign global financial conditions.
Amid some tightening in financial conditions,average EMDE 10-year bond yields have increased
by slightly more than those in the United States(BIS 2021). However, further increases inadvanced-economy yields may result in larger
transmissions into EMDE yields and financial
conditions, which could weigh on the recovery.
Some EMDE central banks are already facing
difficult policy trade-offs in ensuring that inflationpressures remain contained, particularly afterlarge currency depreciations, in the presence of
substantial output gaps. EMDEs with larger
current account deficits and higher external debtto-GDP ratios experienced larger depreciations, on
average, over the past year. Countries with weaklyanchored inflation expectations face a higher andmore persistent pass-through from currency
depreciations to inflation; accordingly, larger
increases in interest rates may be required in these
economies to prevent a persistent rise in inflation(Ha, Stocker, and Yilmazkuday 2019).
On average, capital adequacy ratios remain highand NPLs low in EMDEs, reflecting forbearance
measures, government guarantees, and a delay inloan defaults that has also been typical in previous
recessions (World Bank 2021g). Some EMDE
banking sectors are likely to face significant
challenges as government support measures for

41

42

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G LO BAL EC O NO MIC P ROS P EC TS | J U NE 2021

FIGURE 1.22 Monetary and financial policies in EMDEs

EMDE fiscal policyCore inflation in emerging market and developing economies (EMDEs) has
risen slightly above pre-pandemic levels, with a more pronounced increasein EMDEs that experienced depreciations. In about half of inflationtargeting EMDEs, inflation is expected to exceed targets for 2021, albeit
only slightly. Price pressures and depreciations have required policy
tightening in some countries, even as output gaps remain large. EMDE
banks remain well capitalized, but asset quality could deteriorate as
government support measures end. Improvements in insolvency
frameworks could bolster recovery rates from defaulted loans and facilitatea redeployment of productive capital.

EMDE fiscal support packages announced lastyear were sizable, with discretionary measures
averaging 4 percent of GDP. They were also broad
based, with nearly all countries easing their fiscal
stance. Relative to advanced economies, EMDE
fiscal support was largely front-loaded, withannounced COVID-19 revenue and spending
measures mostly deployed in 2020 (figure 1.23.A;
Gaspar et al. 2021). In addition to thisdiscretionary fiscal support, sharp declines inrevenues contributed to rapidly widening fiscal
deficits in EMDEs, whereas in advanced
economies, widening deficits reflected a surge inspending.

A. Core and headline inflation in
EMDEs

B. Core inflation in EMDEs andexchange rate adjustments

Percent, year-on-year
6

Percent, year-on-year
8
Depreciated > 5%
Depreciated < 5% or appreciated6Core CPI
Headline CPI

4

4
2

2

0

Feb-20Mar-20
Apr-20May-20Jun-20Jul-20Aug-20
Sep-20
Oct-20Nov-20Dec-20Jan-21
Feb-21
Mar-21
Apr-21

Apr-21

Feb-21

Oct-20Dec-20Aug-20

Apr-20Jun-20Feb-20

Oct-19Dec-19Aug-19Apr-19Jun-190

C. Model-based conditional forecast
for EMDE inflation

D. Time to resolve insolvency

Percent
8

Years
4

Median inflation target

Interquartile range

Average63
422

Advanced-economy average
1

0
2019

2020

2021f

EAP

ECA

LAC

MNA

SAR

SSA

Sources: Consensus Economics; Haver Analytics; World Bank.
Note: CPI = consumer price index; EMDEs = emerging market and developing economies; EAP =East Asia and Pacific, ECA = Europe and Central Asia, LAC = Latin America and the Caribbean,
MNA = Middle East and North Africa, SAR = South Asia, SSA = Sub-Saharan Africa.
A. Aggregates calculated using 2020 real U.S. dollar GDP weights at average 2010-19 prices andmarket exchange rates. Sample for "Headline CPI” and “Core CPI” includes up to 89 and 50 EMDEs
respectively. Last observation is April 2021.
B. Sample includes 14 EMDEs where the currency depreciated by more than 5 percent and 28
EMDEs where the currency depreciated by less than 5 percent, or appreciated, between February2020 and April 2021.
C. Based on median inflation in 125 EMDEs and inflation target in 30 inflation-targeting EMDEs. 2021
EMDE inflation forecast described in chapter 4. Vertical line indicates 16-84 confidence bands.
D. Time to resolve insolvency is the number of years from the filing for insolvency in court until the
resolution of distressed assets. Bars show interquartile range whereas orange diamonds show
average number of years.

credit provision are withdrawn and regulatory
guidance is tightened on loan classifications.
Measures to assess credit quality need to bestrengthened to identify the scale of potential loan
losses and insolvency frameworks improved tomaximize recovery rates as government guarantees
and forbearance measures are reviewed (figure
1.22.D; World Bank 2021h).

This year, many EMDEs, including some large
economies, are expected to pivot toward fiscal
tightening to improve the sustainability of publicfinances, despite large spending needs and sizable
output losses relative to pre-pandemic projections(figure 1.23.B-C). For about one-third of those
EMDEs with fiscal rules, this will be aided by agradual transition back to rules-based frameworks
after invoking escape clauses in response to thepandemic. These efforts notwithstanding,government debt is anticipated to continue to riseover the forecast horizon, which will further limit
fiscal space. Moreover, fiscal sustainability gaps are
expected to remain negative, even under current
benign financing conditions; in this context, asudden tightening of financing conditions orworse-than-expected growth could result in higher
adjustment needs to stabilize government debt.
Policy makers continue to face the challenge ofbalancing the need to support the incipient
recovery with that of ensuring fiscal sustainability
and containing vulnerabilities to financial market
stress. Although many EMDEs are still able to tap
international capital markets, a sudden shift ininvestor sentiment could result in a jump inborrowing costs, worsen fiscal positions, andincrease debt rollover and currency mismatch risks(Blanchard, Felman, and Subramanian 2021;
Kalemli-Özcan, Shim, and Liu 2021). To addressthese challenges, authorities can prioritize andstreamline spending, including by targeting social
expenditures more effectively.

G LO BAL EC O NO MIC P ROS P EC TS | J U NE 2021

The pandemic has also created additional fiscal
challenges for EMDEs with less diversified
economies, including energy exporters. For these
economies, earlier oil price declines and thesubsequent need for fiscal adjustment highlight

Nearly all emerging market and developing economies (EMDEs) implemented fiscal support packages to confront the pandemic. Fiscal support
was mostly front-loaded in 2020, however, and many EMDEs are expected
to unwind these measures and adopt a tighter fiscal stance starting thisyear. Strengthening domestic revenue mobilization to close tax revenuegaps, and reducing public spending inefficiencies to yield higher growth
dividends, will be critical to ensure debt sustainability and rebuild fiscal
space, particularly in low-income countries and energy exporters.
A. Fiscal support and stanceB. Fiscal impulses and output gaps

C. Cumulative change in cyclicallyadjusted primary balances

D. EMDE tax revenue gaps withadvanced economies
Percent of GDP
Percent of EMDEs/LICs
Tax revenues
Share below AE average (RHS)
AE average tax revenue
100
100
75

75

50

50

25

25

0

0
EMDEs

LICs

E. Inefficiencies in public spending

F. Revenue impact of low-carbon
scenario in EMDE energy exporters

Percent, higher values indicate lower efficiency
80

Percent deviationfrom baseline

60

60

60

40

40

20

20

40

Percent ofgovernment revenue

20

Education

LICs

EMDEs

AEs

LICs

0
EMDEs

As the pandemic is contained and the recovery
firms, governments will need to shore up mediumterm
fiscalsustainability
by realigning
expenditures with revenues. This can include
measures to improve domestic revenue
mobilization, such as broadening revenue baseswith new tax instruments to help close sizable gaps
with advanced economies (figure 1.23.D; De
Mooij et al. 2020; Kose et al. 2021). On the
spending side, strengthening the efficiency of
public expenditures could help ensure that
additional spending yields dividends to growth(figure 1.23.E; Mathai et al. 2020; Schwartz et al.
2020). Such measures would also help restore thefiscal space that is needed to address sizable
investment gaps and broaden social safety net
coverage, which could build resilience against
future shocks. These efforts can be supported byconfidence-enhancing measures to strengthen
fiscal credibility, such as fortifying medium-term
fiscal frameworks, providing clear policy direction,and increasing debt transparency (Reinhart et al.
2021).

FIGURE 1.23 Fiscal policy in emerging market anddeveloping economies

AEs

For smaller EMDEs and LICs, many of whichcurrently face liquidity or solvency issues,international debt relief and financing support
have been critical in providing fiscal space. These
include the Debt Service Suspension Initiative and
the G20 Common Framework, with the latter also
helping to facilitate coordination among creditors.
Other initiatives, such as the World Bank Group’s
Sustainable Development Financing Policy, canhelp some countries address debt vulnerabilities
and achieve more sustainable debt, including
through the provision of technical assistance.
However, additional resources are likely to beneeded, including grants and highly concessional
funding, as well as increased private sector
participation. Measures to further strengthen thedebt restructuring framework could also help
increase the efficiency and effectiveness ofrestructuring in circumstances where it provesnecessary (Group of Thirty 2021).

43

CHAPTER 1

Infrastructure00Potential energy
revenue losses

Energy revenues(RHS)

Sources: Baum, Mogues, and Verdier (2020); Carbon Tracker; IMF; World Bank.
Note: AEs = advanced economies; EMDEs = emerging market and developing economies;
EM7 = China, India, Brazil, Mexico, the Russian Federation, Indonesia, and Turkey; LICs = lowincome-countries. Fiscal impulse is defined as the negative change in the cyclically-adjusted primarybalance (CAPB) from the previous year. Declines (increases) in the fiscal impulse indicate fiscal
tightening (expansion). Shaded areas indicate forecasts.
A. Discretionary fiscal support measured as additional spending and foregone revenues, as in IMF(2021a). Sample includes 34 advanced economies and 30 EMDEs.
B. Output gaps estimated using a modified multivariate filter model of World Bank (2018). Blue bars
reflect range around one standard deviation.
C. Figure shows the median cumulative change in the CAPB, as measured in IMF (2021a). Sample
includes 34 advanced economies and 30 EMDEs.
D. Data reflect the last observation available between 2016 and 2018. Sample includes 36 advanced
economies, 127 EMDEs, and 21 LICs.
E. Figure shows median efficiency gap: The difference between the country's spending efficiency andthat of best performers, as measured in Baum, Mogues, and Verdier (2020). Yellow whiskers showinterquartile ranges. Sample includes 34 advanced economies, 139 EMDEs, and 24 LICs.
F. Figure shows the share of oil and gas revenue in total government revenue and potential
government energy revenue loss under a low-carbon scenario, as measured by Carbon Tracker.
Potential energy revenue losses reflect shortfalls over 2021-40 relative to 2015-19 average, whereas
energy revenues are the 2015-18 average. Aggregates are calculated using 2019 real U.S. dollar
GDP weights at average 2010-19 prices and market exchange rates. Sample includes 25 EMDE
energy exporters.

44

CHAPTER 1

the urgency of diversifying sources of fiscal
revenue (Stocker et al. 2018). Although global oil
prices in the near term have been revised up,
broadening the fiscal revenue base could help
reduce the vulnerability of EMDE energy
exporters to adverse external shocks, particularly asother countries shift toward greener energy (figure
1.23.F). These efforts can be further
complemented by other reforms that promote
diversification, including those that bolster
competition and improve the business environment, as well as fiscal measures that reduce costly
energy subsidies and strengthen macroeconomic
policy frameworks (Wheeler et al. 2020).
EMDE structural policies
The pandemic is expected to exacerbate theslowdown in EMDE potential growth that had
already been projected over the next decade. The
accumulated scars on human capital will be slow
to heal, while the pace of accumulation of physicalcapital is likely to remain subdued for a prolonged
period (World Bank 2021a). Productivity may
have also been impaired by disruptions toorganizational effectiveness, increased transaction
costs, and reduced dynamism, even if some firms
have taken the opportunity to increasetechnological adoption (di Mauro and Syverson
2020; Apedo-Amah et al. 2020).
The policy response to the crisis provides anopportunity to bolster a green, resilient, andinclusive recovery that addresses both the scars
brought about by COVID-19 and the longer-term
challenges of climate change (World Bank 2021d).
To this end, authorities can carefully sequence a
package of growth-enhancing reforms, prioritizing
policies aimed at alleviating the damage caused tohuman capital, investment, and productivity by
the pandemic, while better aligning private sector
incentives with broader economic policy
objectives. These include policies that would
facilitate the transition of labor across sectors while
protecting vulnerable groups, deepen humancapital, expand access to digital connectivity,
reduce trade costs, and boost green investments.
Reinvigorating human capital
The COVID-19 recession caused a severe yet
uneven collapse in employment across sectors, and

G LO BAL EC O NO MIC P ROS P EC TS | J U NE 2021

some of those jobs are at risk of automation.
EMDEs suffered particularly large declines inworking hours (figure 1.24.A; ILO 2021a). Policy
action needs to underpin a resilient and inclusive
recovery in employment and limit the damage tohuman capital originating from long spells of
unemployment. Active labor market policies—
such as providing employment services,
entrepreneurship support, and worker retraining
programs—can be pursued to encourage
employment in sectors experiencing higher growth(Card, Kluve, and Weber 2018; Schmillen 2020;
Trebilcock 2014). Coupled with income support
programs geared toward vulnerable populations,such as targeted cash transfers, active labor market
policies can facilitate the movement of labor acrosssectors and enhance employment prospects in lowincome countries (Escudero and Liepermann2020).
Investing in education is also needed to mitigate
the disruptions to human capital brought about by
the pandemic, including learning losses and youth
disengagement. About 60 percent of low- andlower-middle-income countries have cut their
public education budgets since the onset of thecrisis, reversing a decade-long trend of increased
funding (figure 1.24.B; UNESCO 2021).
Education budgets can be bolstered withadditional financing deployed to incentivize
attendance and educational attainment, improve
school facilities, and reform incentive structures
for teachers, which can also increase the efficiencyof existing education spending (Hui, La-Bhus, andBaoping 2019; World Bank 2018b; World Bank
2021i). Investment in learning infrastructure leads
to improved educational outcomes and higher
incomes in the long term (Akresh, Halim, andKleemans 2021). Moreover, governments canfacilitate access to existing free and open-source
education technologies in a way that favors theinclusion of disadvantaged groups (Burns et al.
2019; UNESCO 2020).
Expanding access to digital connectivity
Policies aimed at expanding access to digitalconnectivity can also be pursued to accelerate
digital transformation and support higher
productivity and potential output. In many
EMDEs, this requires liberalizing telecom-

G LO BAL EC O NO MIC P ROS P EC TS | J U NE 2021

munications sectors while expanding investment
in communications infrastructure. Properly
liberalized telecommunications, coupled withregulatory independence and efficient taxation ofdigital services, can catalyze private sector
investment that lowers the cost of access andincreases internet adoption and access to digital
services, with significant spillovers to the rest of
the economy (Arezki et al. 2021; RodriguezCastelan et al. 2021; World Bank 2019).

FIGURE 1.24 Structural policies in emerging market
and developing economies
The pandemic severely reduced working hours in emerging market anddeveloping economies (EMDEs). Disruptions to education have been
particularly large in lower-income countries, a majority of which have cut
education budgets since the pandemic began. In order to sustain thenascent recovery, authorities can prioritize policies to boost productivity,
including measures that reduce trade costs. There remains significant
scope to improve environmental performance in EMDEs, including by
reducing greenhouse gas emissions and accelerating investments ingreen infrastructure.
A. Changes in working hours in 2020

Policy makers can also play a key role inaccelerating the pace of adoption of digitaltechnologies by firms (World Bank 2016). Efforts
to foster equitable internet access for distancelearning can help avoid the widening of a digital
divide across income levels. In addition, policies
that enhance data transparency and security canstrengthen institutions, including by holding
governments more accountable, which in the longrun is associated with higher levels of per capita
income (Islam and Lederman 2020). Fostering
data transparency is important to guarantee an
efficient allocation of resources, and it can also
help reduce borrowing costs by instilling market
discipline and reducing uncertainty (Kubota and
Zeufack 2020).

Trade costs have declined steadily in EMDEs since
the mid-1990s. Still, in many countries, theyremain well in excess of 100 percent of the valueof traded goods and substantially higher than inadvanced economies (figure 1.24.C-D). Tradecosts are particularly elevated in small island states.
Poor communication and transportation infrastructure, a lack of logistics services, lengthy

Reduced or zero working hours
Inactivity
Unemployment

Percent
0

B. Share of countries with recent
declines in education budgets
Percent
80
60

-2
-4

40

-6
20

-8

0

-10
Advanced
economies

EMDEs

High- and uppermiddle-income

LICs

C. Trade costs and tariff rates
Percent
150

Trade costs

Low- and lowermiddle-income

D. EMDE trade costs and tariff rates
Percent
15

Tariffs (RHS)

Percent
150

Trade costs

Tariffs (RHS)

Percent
15

100

10

100

10

50

5

50

5

0

0

0

0

Reducing trade costs
Trade integration can yield significant productivity gains, especially when it involves participationin global value chains (Constantinescu, Matoo,and Ruta 2017; World Bank 2020e). Trade
openness can raise incomes across sectors, lower
poverty, and reduce gender bias in wages (WorldBank and WTO 2020). Conversely, high trade
costs hinder competitiveness, limit participation in
global value chains, and erode consumer welfare
by reducing the availability of goods and services
for consumption (Diakantoni et al. 2017).

45

CHAPTER 1

Advanced economies

EMDEs

EAP ECA LAC MNA SAR SSA

F. Global greenhouse gas emissions

E. Environmental performance
Score
150

Percent
5

EPI score
10 year change (RHS)

120

3

60

2

30

1

0

0

-30

-1
EMDEs

LICs

Electricity and heatTransport
Other energy
Agriculture
Industry
Waste

4

90

Advanced
economies

Percent
80
60
40
20
0
EnergyNon-energy

Sources: Al-Samarrai et al. (2021); Comtrade (database); Environmental Performance Index, Yale
University (database); ESCAP-World Bank Trade Cost Database; International Labour Organization(2021a); World Bank; World Resources Institute.
Note: EMDEs = emerging market and developing economies; EPI = Environmental Performance
Index; LICs = low-income countries; EAP = East Asia and Pacific, ECA = Europe and Central Asia,
LAC = Latin America and the Caribbean, MNA = Middle East and North Africa, SAR = South Asia,
SSA = Sub-Saharan Africa.
A. Unemployment and inactivity converted into working-hour equivalents. EMDE aggregate calculated
as the unweighted average of lower middle-income countries and upper middle-income countries.
Advanced economies refers to ILO’s classification of high-income countries.
B. Figure shows share of countries with declines in education budgets between March 2020 and
February 2021. Budget changes extracted from country documents for 29 EMDEs.
C.D. Data are for 2018. Blue bars show average trade costs expressed as ad valorem (tariff)
equivalent of the value of traded goods. Red bars show average tariffs. Bilateral trade costs
aggregated using 2018 bilateral country export shares. Yellow whiskers show interquartile ranges.
E. EPI is a proxy measure of environmental health calculated by Yale University for 180 countries
based on 32 performance indicators. Countries ranked according to their relative performance acrossall categories. Orange whiskers show interquartile range.
F. Data are for 2018. “Other energy” includes energy used by industry, construction, and otheremissions from energy production.

46

CHAPTER 1

border processes, and elevated tariff barriers all
contribute to high trade costs (chapter 3).
Authorities can facilitate trade integration byimplementing policies that reduce the cost of
trading, including streamlining border procedures
and reducing border fees through simplification ofborder clearance procedures, automation, anddigitalization of border processes. Adoption ofdigital technologies can also enhance information
flows between exporters and shippers, supporting
global value chains. In addition, enhancing
transparency in the provision of customs
information can reduce corruption anduncertainty. In lower-income countries, investments can improve connectivity by modernizing
communications and road, railway, and port
infrastructure, while trade liberalization can reduce
tariff barriers. Swift implementation of reforms
included in the WTO Trade Facilitation
Agreement—such as provisions for expediting the
movement, release, and clearance of goods intransit—can also be encouraged, including
through close cooperation between customs
authorities. Trade and global value chain integration could also be promoted through policies
aimed at attracting FDI and fostering interactionsof domestic firms with multinational corporations(Qiang, Zhenwei, and Steenbergen 2021).
Deploying and financing green infrastructure
The post-pandemic recovery represents anopportunity to pursue long-term strategies to put
countries on a greener development path.
Investments in green infrastructure, climate-smart
agricultural technologies, and climate resilience,
combined with sustainable energy policies, canplay a pivotal role to this end. There istremendous scope to improve environmental
performance through green investments in
EMDEs, including retrofitting buildings forenergy efficiency and increasing the use of

G LO BAL EC O NO MIC P ROS P EC TS | J U NE 2021

renewable energy sources to lower greenhouse gas
emissions (figure 1.24.E-F). Enhancing environmental clean-up activities and monitoring anddeterring the illicit extraction of natural resources
can also bolster growth prospects (Strand andToman 2010).
Attracting private investment is essential torealizing ambitious green investment goals. Thisrequires a supportive domestic environment, with
reduced risks, strong competition, and measures topromote capital flows. Providing an effective
regulatoryenvironment,
while
enforcingenvironmental standards, is paramount to thisendeavor (Ambec et al. 2011). Authorities can also
buttress the capacity of domestic financial sectors
to attract capital to fund green investments incollaboration
withinternational financial
institutions, including by strengthening regulationand supervision of local financial institutions.
Moreover, concessional finance can play a key roleinsupporting
climate-smart
investments.
Authorities can also introduce regulations that“green” the financial sector, such as reporting
requirements that highlight environmental, social,and governance risks to financial institutions.
As governments adopt policy measures toreinvigorate growth, they can further prioritize
objectives related to climate change adaptation
and resilience, including enhancing climate risk
information systems (Tall et al. 2021).
Infrastructures in EMDEs remain particularly
vulnerable to climate risks (Miller and Swann
2016). In this regard, ensuring adequate
infrastructure maintenance can promote resilienceagainst climate disasters, which is particularly
important for small island states (Rozenberg andFay 2019). Moreover, promoting the issuance ofgreen bonds can also increase investments inclimate change mitigation and adaptation,
especially if combined with carbon pricing policies(Heine et al. 2019).

G LO BAL EC O NO MIC P ROS P EC TS | J U NE 2021

CHAPTER 1

47

TABLE 1.2 Emerging market and developing economies1
Commodity exporters 2

Commodity importers 3

Afghanistan

Lao PDR

Albania

Romania

Algeria*

Liberia

Antigua and Barbuda

Samoa

Angola*Libya*

Bahamas, The

SerbiaArgentina

Madagascar

Bangladesh

Sri Lanka

Armenia

Malawi

Barbados

St. Kitts and Nevis

Azerbaijan*

Mali

BelarusSt. Lucia

Bahrain*

Mauritania

BhutanSt. Vincent and the Grenadines

BelizeMongolia

Bosnia and Herzegovina

Thailand

Benin

MoroccoBulgaria

Tonga

Bolivia*

Mozambique

Cambodia

Tunisia

Botswana

Myanmar*

China

TurkeyBrazilNamibia

Croatia

TuvaluBurkina Faso

Nicaragua

Djibouti

Vanuatu

BurundiNiger

Dominica

Vietnam

Cabo Verde

Nigeria*

Dominican Republic

Cameroon*

Oman*

Egypt, Arab Rep.

Central African Republic

Papua New Guinea

El Salvador

Chad*

Paraguay

Eritrea

Chile

Peru

Eswatini

Colombia*

Qatar*

Georgia

Comoros

Russian Federation*

GrenadaCongo, Dem. Rep.

RwandaHaiti

Congo, Rep.*São Tomé and Príncipe

Hungary

Costa Rica

Saudi Arabia*

India

Côte d’Ivoire

Senegal

Jamaica

Ecuador*

Seychelles

JordanEquatorial Guinea*

Sierra Leone

Kiribati

Ethiopia

Solomon Islands

LebanonFiji

South Africa

LesothoGabon*South Sudan*

Malaysia

Gambia, The

Sudan

Maldives

Ghana*

Suriname

Marshall Islands

GuatemalaTajikistan

Mauritius

GuineaTanzania

MexicoGuinea-Bissau

Timor-Leste*

Micronesia, Fed. Sts.

GuyanaTogo

Moldova

Honduras

UgandaMontenegro

Indonesia*

UkraineNauru

Iran, Islamic Rep.*

United Arab Emirates*

Nepal

Iraq*

Uruguay

North Macedonia

Kazakhstan*

Uzbekistan

Pakistan

KenyaWest Bank and Gaza

Palau

KosovoZambiaPanamaKuwait*Zimbabwe

Philippines

Kyrgyz Republic

Poland* Energy exporters.
1. Emerging market and developing economies (EMDEs) include all those that are not classified as advanced economies and for which a forecast is published for this report. Dependent
territories are excluded. Advanced economies include Australia; Austria; Belgium; Canada; Cyprus; the Czech Republic; Denmark; Estonia; Finland; France; Germany; Greece; Hong Kong
SAR, China; Iceland; Ireland; Israel; Italy; Japan; the Republic of Korea; Latvia; Lithuania; Luxembourg; Malta; the Netherlands; New Zealand; Norway; Portugal; Singapore; the Slovak
Republic; Slovenia; Spain; Sweden; Switzerland; the United Kingdom; and the United States.
2. An economy is defined as commodity exporter when, on average in 2017-19, either (i) total commodities exports accounted for 30 percent or more of total exports or (ii) exports of any
single commodity accounted for 20 percent or more of total exports. Economies for which these thresholds were met as a result of re-exports were excluded. When data were not available,
judgment was used. This taxonomy results in the classification of some well-diversified economies as importers, even if they are exporters of certain commodities (for example, Mexico).
3. Commodity importers are all EMDEs that are not classified as commodity exporters.

48

CHAPTER 1

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11_PB9.pdf.

55

CHAPTER 2REGIONAL OUTLOOKGrowth in East Asia and Pacific (EAP) is projected to accelerate to 7.7 percent in 2021, largely reflecting astrong rebound in China. Nevertheless, output in two-thirds of the countries in the region will remain below
pre-pandemic levels until 2022. The pandemic is expected to dampen potential growth in many economies,
especially those that suffered most from extended outbreaks of COVID-19 and the collapse of global tourism andtrade. Downside risks to the forecast include, the possibility of repeated and large COVID-19 outbreaks amid
delayed vaccinations; heightened financial stress amplified by elevated debt levels; and the possibility of more
severe and longer-lasting effects from the pandemic, including subdued investment and eroded human capital.
Disruptions from natural disasters are a constant source of severe downside risk for many countries, especiallyisland economies. On the upside, risks include accelerated vaccination rollouts and greater-than-expected
spillovers from recoveries in the United States and other major economies.

Recent developments
After sharply slowing to 1.2 percent in 2020,
regional growth has bounced back, but with the
speed of recovery differing considerably among
countries (tables 2.1.1 and 2.1.2). With a few
exceptions, recovery to pre-COVID-19 output
levels is far from complete. Among the region’s
three largest economies (China, Indonesia,
Thailand), only China has seen its output alreadysurpassing pre-pandemic levels (figure 2.1.1.A).
In China, COVID-19 infections remain low andthe recovery has broadened from public
investment to consumption (figure 2.1.1.B).
Goods export growth has been strong, and goods
import growth has accelerated, helped byrecovering domestic demand (figure 2.1.1.C). The
authorities have recently started to shift policy
efforts away from supporting activity and toward
addressing financial stability risks by reducing net
liquidity provision (figure 2.1.1.D). The
Indonesian economy initially suffered a shallower
output contraction than many other emerging
market and developing economies (EMDEs), but

Note: This section was prepared by Ekaterine Vashakmadze.

this has been followed by a more gradual recovery.
Indonesia’s initial resilience reflected in part thegreater insulation from the collapse of global
tourism and trade combined with decentralized
and gradual lock-downs despite a severe andpersistent COVID-19 outbreak. By contrast, inThailand, which depends heavily on trade andtourism, the initial contraction was much sharper
despite the low incidence of infection, because of
the sizable drop in external demand combinedwith domestic policy uncertainty.
Among the other large ASEAN countries(Malaysia, the Philippines, and Vietnam), only
Vietnam, has seen output surpassing its prepandemic levels (figure 2.1.2.A). Vietnam has
been successful in containing COVID-19 and has
benefitted from fiscal measures supporting public
investment and robust foreign direct investment(FDI) inflows. By contrast, output remains 8
percent below its pre-pandemic level in the moretourism-dependent Philippines, which has
implemented extended periods of strict lockdowns
in response to a severe COVID-19 outbreak andhas also suffered from a series of natural disasters
including super-typhoon Goni and a volcanic
eruption. Several small island economies (Fiji,
Samoa, Palau, Vanuatu), which have been largely
spared from direct health effects of the pandemic

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FIGURE 2.1.1 China: Recent developments
Among the region’s three largest economies, only China has seen output
surpassing pre-pandemic levels. The recovery has gradually broadened
from public investment to consumption. Goods export growth has beenstrong, and goods import growth has accelerated. Authorities have started
to shift policy efforts away from supporting activity toward reducing
financial stability risks.
A. GDP

B. Contributions to GDP growth

Index, 2019Q4 = 100
China
110
Indonesia
Thailand105
Other EMDEs

Percentage points
Net exports
20
Investment
Consumption
15
GDP growth Y/Y(RHS)

100

10

10

5

5

0

0

95

Percent
20
15

2019

2020

Q1

Q4

Q3

Q2

Q4

85

Q1

90

-5

-5
15-19

2021

2020H1 2020H2 2021Q1

C. Goods exports and imports

D. Net liquidity provision

Index, December 2019 = 100
Exports Imports
140

Percent of GDP
10

120

8

100

6

Net liquidity provision
M2 (RHS)

Percent
11

10

4

80

2

60

9

0
Apr-21

Dec-20Aug-20

Apr-20Dec-1940-2-4continue to weigh on consumer confidence andlimit private spending (figure 2.1.2.C). A strong
rebound of regional goods exports, helped byrobust global manufacturing trade, is providing
some support to regional growth (figure 2.1.2.D).
Fear of the virus and ongoing travel restrictions,however, continue to limit economic activity intourism-dependent economies of the region(Cambodia, Fiji, Palau, Thailand, Vanuatu).

Outlook
Regional growth is projected to strengthen to 7.7
percent in 2021, primarily reflecting strong
activity in China (figure 2.1.3.A). In China,
growth is projected to accelerate to 8.5 percent
this year, faster than projected in January,
supported by buoyant exports and the release ofpent-up demand amid effective control of theoutbreak. Output in the rest of the region is
projected to grow by 4.0 percent in 2021, more
slowly than in the January forecasts, because ofcontinued pandemic-related headwinds and adelayed recovery of global tourism and travel.

8
2019

2020H1 2020H2 2021Q1

Sources: Haver Analytics; National Bureau of Statistics of China.
A. Last observation is 2021Q1 for China, Indonesia, and Thailand. Last observation is 2020Q4 forother EMDEs.
B. Figure shows year-on-year real GDP growth and expenditure contributions. Data is based on
official estimates published by the Chinese National Statistics agency. Last observation is 2021Q1.
C. Value of goods imports and exports. Last observation is April 2021.
D. “Net liquidity provision” refers to liquidity injections by the People’s Bank of China through its
lending facility (SLF), medium-term lending facility (MLF), targeted medium-term lending facility(TMLF), pledged supplementary lending facility (PSL), special-purpose refinancing facility (SPRF)
and the special relending or rediscounting facilities. Red line denotes year-on-year money supply(M2) growth. Last observation is 2021Q1.

have been devastated by the collapse of global
tourism and travel, as well as the effects ofcyclones Harold and Yasa.
COVID-19 infection rates remain elevated inIndonesia, Malaysia, and the Philippines and haverecently increased in Cambodia and Thailand.
Social distancing measures to stem the pandemic
have been reimposed across the region in responseto sporadic outbreaks. Mobility aroundworkplaces and retail areas remains subdued inmany economies, reflecting lingering infection
and slow progress at vaccination (figure 2.1.2.B).
These factors, along with significant income andjob losses and persistent policy uncertainty,

The regional forecast is slightly above the January
projections, as an upgrade for China more thanoffsets downgrades elsewhere. The regional
recovery is expected to moderate in 2022 as
China’s growth edges down toward its potential
rate. Growth in China is projected to moderate to
5.4 percent in 2022, reflecting diminishing fiscal
and monetary support and tighter property andmacroprudential regulations. By contrast, growthin the rest of the region is projected to accelerate
to 5.0 percent in 2022 as the economic recovery
takes hold.
The projected growth would not be sufficient tofully undo the pandemic-related output losses inmany regional economies, with output in twothirds of them expected to remain below prepandemic levels until 2022 (figure 2.1.3.B).
Output gaps are expected to remain negative andlarge for an extended period (figure 2.1.3.C). In
one-third of the economies in the region, output is
expected to recover to its pre-pandemic levels overthe course of 2021 or early 2022 but to remain
below pre-pandemic projections, with gaps
ranging from about one percent in China to more

G LO BAL EC O NO MIC P ROS P EC TS | J U NE 2021

In the Philippines, GDP growth is projected at 4.7
percent in 2021 and 5.9 percent in 2022, with
output expected to reach its pre-pandemic levels in
the course of 2022. In Malaysia, growth isexpected to rebound to 6 percent in 2021,
provided the COVID-19 outbreak remains incheck and vaccine distribution accelerates. Output
in Vietnam is projected to expand by 6.6 percent
on average in 2021 and 2022, resulting in only asmall gap between the current forecast of GDP
and pre-pandemic projections.
In February 2021, the military assumed power in
Myanmar, resulting in significant supply anddemand-side impacts on an economy that had
already been weakened by COVID-19. The
economic outlook is now highly uncertain. Any
recovery from the deep GDP contraction that is
likely in 2021 will require a normalization ofdomestic conditions, of which there is little
evidence to date. The outlook for international

A. GDP

B. Mobility around retail andrecreation

Index, 2019Q4 = 100
Malaysia
Philippines
110
Vietnam
Other EMDEs excl. China

Percent

100

-20

20

Indonesia
Thailand

Malaysia
VietnamPhilippines

0

-40
90

-60
-80
Q1

2019

Q2

Q3

Q4

2020

Q1
2021

-100
Mar-20Jun-20Index, 2019 = 100
Industrial production
20

Percent
30

0

20

-20

10

-10

-80

-20

Vietnam

0-60

Malaysia-40

Indonesia
Thailand

Malaysia
Vietnam

May-21

Philippines-30

Apr-19Retail sales

Apr-20D. Export growthJan-21

Oct-19C. Industrial production and retailsales: Deviation from pre-pandemic
levelsOct-20

Apr-21

Q4

Oct-2080

Indonesia

In Indonesia, growth is expected to rebound to
4.4 percent in 2021 and strengthen further to 5
percent in 2022. But many jobs in low valueadded services—such as trade, transport, andhospitality—were lost during the crisis and will beslow to come back. Thailand’s economy isexpected to recover gradually over the next two
years, with growth picking up to 2.2 percent in
2021 before accelerating to 5.1 percent in 2022,
helped by the recovery of global tourism andtravel.

Among the smaller ASEAN countries, only Vietnam has seen output
surpassing its pre-pandemic levels. Mobility around retail areas remains
subdued, reflecting continued spread of the virus amid slow progress of
vaccination. Consumer spending has therefore been lagging, but industrial
output has mostly recovered, helped by a quick rebound of regional goods
exports.

Thailand

There is considerable uncertainty about theoutlook. COVID-19 caseloads are expected toremain elevated in several regional economies thisyear, owing to the limited vaccination progress
and the spread of new variants, requiring many
governments to keep various pandemic-control
measures in place. Rising vaccination rates are
expected to reduce caseloads throughout 2022 and2023 in most regional economies. The strength of
the region’s recovery will depend particularly on
the ability of the major regional economies tomeet their vaccination commitments, themagnitude of spillovers from other economies,
and country-specific conditions.

FIGURE 2.1.2 EAP: Recent developments

Philippines

than 10 percent in Cambodia and the Philippines(figure 2.1.3.D).

61

EAST ASIA AND PACIFIC

Sources: Google Maps; Haver Analytics; World Bank.
A. Last observation is 2021Q1 for Malaysia, the Philippines, and Vietnam. Last observation is
2020Q4 for “Other EMDEs excl. China.”
B. 21-day moving average. Mobility refers to changes in visits to (or time spent in) retail andrecreation facilities compared to the baseline. The baseline day represents a normal value of visits
for that day of the week. Retail and recreation facilities include restaurants, cafes, shopping centers,
theme parks, museums, libraries, and movie theaters. Last observation is May 29, 2021.
C. For industrial production, last observation is March 2021 for Malaysia, the Philippines, andThailand, and April 2021 for Vietnam; Indonesia is an estimate. For retail sales, last observation is
March 2021 for Malaysia and Thailand and April 2021 for Indonesia and Vietnam; the Philippines isan estimate.
D. Value of goods exports. 3-month moving average of year-on-year change. Last observation is
March 2021 for Indonesia, Malaysia, Thailand, and the Philippines. Last observation is April 2021 forVietnam.

trade and foreign investment has worsened due tosevere finance and logistics constraints and a sharp
deterioration of the busines environment, as wellas the reactions of foreign governments and firms.
Among the smaller countries, the recovery is
expected to be particularly feeble in the tourismdependent island economies. These countries havesuffered severely from the collapse of global
tourism, which is expected to remain below prepandemic levels until at least 2023.

62

CHAPTER 2.1

G LO BAL EC O NO MIC P ROS P EC TS | J U NE 2021

FIGURE 2.1.3 EAP: Outlook

Risks

Regional growth is projected to rebound in 2021, partly reflecting a rapid
recovery in China. The rest of the region is expected to grow more
moderately, and output in two-thirds of the countries in the region is
projected to remain below pre-pandemic levels until 2022. Output gaps are
expected to remain negative and large for an extended period. Output inthe region excluding China is projected to remain about 10 percent below
pre-pandemic projections in 2022.
A. GDP growth

B. GDP change from 2019
Percent
20
10
0
-10
-20
China

C. Output gap

EA excl.
China

Islandeconomies

D. Deviation of GDP from January
2020 forecasts

Percent
3

2020

2021

2019

Index, Jan 2020 GEP forecast = 100
China
EA excl. China
105
Island economies

0
100
-3
95

Philippines

Thailand

Malaysia

Indonesia

China

Vietnam

-6

90
2019

2020

2021

Sources: Bank for International Settlements; Haver Analytics; Institute of International Finance; Penn
World Tables; World Bank.
A. Year-on-year change of real GDP in 2010-19 average prices. EAP excl. China = Cambodia, Indonesia, Lao PDR, Malaysia, Mongolia, Myanmar, the Philippines, Thailand, and Vietnam. Island economies = Fiji, Kiribati, Marshall Islands, Micronesia, Palau, Papua New Guinea, Samoa, Solomon Islands, Timor-Leste, Tonga, Tuvalu, and Vanuatu. Aggregate growth rates are calculated using average
2010-19 GDP weights and market exchange rates. Data in shaded areas are forecasts.
B. Cumulative GDP in 2020 and projected for 2021. The aggregate is a simple average. EA excl. China= Cambodia, Indonesia, Lao PDR, Malaysia, Mongolia, Myanmar, the Philippines, Thailand, andVietnam. Island economies = Fiji, Kiribati, Marshall Islands, Micronesia, Nauru, Palau, Papua New
Guinea, Samoa, Solomon Islands, Timor-Leste, Tonga, Tuvalu, and Vanuatu. Error bars denote thelargest and smallest change in the aggregates.
C. Based on estimates from a modified multivariate filter model (World Bank 2018).
D. Deviation from the levels under the baseline scenario implied by January 2020 GEP forecasts.

The pandemic is expected to dampen potential
growth in many regional economies, especiallythose that have suffered most from extended andsevere outbreaks of COVID-19 (World Bank
2020a). Rising indebtedness along with increased
uncertainty and risk aversion are likely to inhibit
investment. School closures and job losses haveseverely eroded human capital (World Bank
2020b). Obstacles to the reallocation of resourcesaway from firms and sectors with limited potential
in a post-COVID-19 world is hurting productivity growth (De Nikola et al. 2021).

Risks to the regional outlook are more balanced
than in January but the downside risks predominate. On the downside, vaccination delays in thecontext of new virus variants could lead to a more
persistent pandemic and the possibility of repeated
and large outbreaks. Slow global suppression of
the disease would increase the risk of theemergence of new variants that could be more
infectious, lethal, and resistant to existing vaccines.
Vaccine administration has been proceeding
unevenly across countries. In China, the share of
population which had received at least one dose of
vaccine is estimated to have surpassed 30 percent
reflecting the accelerated pace of vaccination(figure 2.1.4.A). None of the other major regional
economies have surpassed 10 percent vaccine
coverage. The current pace of vaccination could
make it difficult to achieve widescale vaccinationin many countries for some time, which increases
the probability of the protracted and weaker-thanprojected regional economic recovery. The
protracted recovery may worsen balance sheets
further and could lead to financial stress in somecountries. All tourism-dependent countries are
expected to suffer from a delay in the recovery ofinternational tourism and travel and longer-thanexpected recovery of output.
There is also a risk that favorable global financial
conditions of recent years may not persist.
Significant fiscal support could lead to concerns
about rising inflation or monetary tightening in
the United States, with important international
spillover effects (Chapter 1). In the past, U.S.
monetary tightening has often contributed tocurrency depreciation in EMDEs, followed bydomestic monetary tightening and, in somecountries, capital outflows, and financial turmoil
in the region’s most vulnerable economies. The
impact is likely to be concentrated in countries
with deeper financial markets, elevated external
debt levels, large current account deficits, and highexternal financing needs (Cambodia, Lao People’s
Democratic Republic, Mongolia; figures 2.1.4.BC). Alternatively, in some countries there is a riskthat the recent acceleration in inflation due tocommodity price increases and currency depreciation could de-anchor inflation expectations.

G LO BAL EC O NO MIC P ROS P EC TS | J U NE 2021

A. Share of population with at least
one vaccine dose

B. Domestic and external debt, 2020

Percent of population
40

Percent of GDP
300

EMDEs

Domestic debt
External debt

250

30

200

20

150

10

100
50

C. External financing needs
Percent of GDP
80

2020

WSM
FJI
VUT
TON
SLB
PNG
TLS

0
MNG
CHN
MYS
VNM
THA
KHM
LAO
PHL
IDN
MMR

VietnamThailandPhilippines

Malaysia

Indonesia

Lao PDR

Cambodia

China

0East Asia

Island economies

D. Cost and frequency of natural
disasters, 1980-2019

2021

2013

60

Percent of GDP
Island economies
1.0
Small states

Frequency
East Asia
8
EMDEs

0.8

40
20

0.6

0

0.4

-20

0.2

6
4

TLS
FJI
SLB
VUT
PNG

Upside risks include faster vaccination and more
rapid control of the pandemic than currently
assumed. The policy support and recoveries in the
United States and other major economies could
have greater than assumed spillovers that boost
regional growth, especially through stronger tradeand remittances. The most export-oriented
or competitive regional economies—including
China, Cambodia, Malaysia, Thailand, andVietnam—would be expected to benefit mostfrom higher growth in the United States and otheradvanced economies (World Bank 2021a).

The regional forecast is subject to a number of downside risks. Repeated
and large COVID-19 outbreaks and delays in vaccine rollout could lead toa more persistent pandemic and the possibility of repeated outbreaks.
Countries with large current account deficits and large external financing
needs are highly exposed to the risk related to heightened financial stressamplified by possible tightening of financing conditions. Disruptions fromnatural disasters and weather-related events are a persistent source ofsevere downside risk for many countries, especially island economies.

CHN

Finally, the region is also facing a risk of more
severe and longer-lasting effects from thepandemic than expected, including more subdued
investment than assumed and eroded humancapital. Annual growth in the next decade could
be more than one percentage point lower thanpre-COVID-19 projections in the region
excluding China, even considering the positive
impact of technological advancements (WorldBank 2018, 2021a).

63

FIGURE 2.1.4 EAP: Risks

MNG
KHM
MYS
LAO
THA
IDN
VNM
PHL
MMR

Disruptions and damages related to frequent
natural disasters and weather-related events are apersistent source of severe downside risk for many
economies in the region. Small island countries are
particularly vulnerable, losing about 0.8 percent of
aggregate GDP per year during 1980-2019, on
average, to damages related to natural disasters,compared to 0.3 percent in all EMDEs (figure
2.1.4.D).

EAST ASIA AND PACIFIC

Other East Asia

Islandeconomies

2

0.0

0
Annual average
cost of disasters

Disaster frequency(RHS)

Sources: Bank for International Settlements; EM-DAT, CRED/UCLouvain, https://www.emdat.be;
Haver Analytics; International Monetary Fund; Institute of International Finance; Our World in Data;
World Bank.
A. Percent of population that has received at least one vaccine dose. Data for China is an estimate.
Last observation is June 1, 2021.
B. Chart shows an estimated stock of domestic and external debt. Island economies = Fiji, Papua New
Guinea, Samoa, the Solomon Islands (SLB), Timor-Leste (TLS), Tonga, Vanuatu. Domestic debt stock
data for China, Indonesia, Malaysia, the Philippines, Thailand, and Vietnam are based on Institute ofInternational Finance (IIF) database. Last observation is 2020 for China, Indonesia, the Philippines,
and Thailand. Last observation is 2019 for Malaysia and Vietnam. Domestic debt stock data for Cambodia, Fiji, Mongolia, Myanmar, Papua New Guinea, Samoa, the Solomon Islands, Timor-Leste,
Tonga, and Vanuatu are based on World Development Indicators (WDI) data. Last observation is 2019.
External debt stock data for Cambodia, China, Fiji, Indonesia, Lao PDR, Malaysia, Mongolia, Papua
New Guinea, the Philippines, the Solomon Islands, and Thailand are calculated based on Quarterly
External Debt Statistics (QEDS). Last observation is 2020Q4. External debt stock data for Kiribati,
Myanmar, Timor-Leste, Tonga, Vanuatu, and Vietnam are based on World Development Indicators(WDI) data. Last observation is 2019.
C. Estimated as a difference between current account and debt obligations coming due. Debt obligations coming due include the sum of principal repayment and interest in currency, goods, or services
on long-term debt, on short-term debt, and repayments (repurchases and charges) to the IMF incorresponding year and short-term external debt stocks in corresponding year. External debts in 2020
and 2021 are estimated. GDP and current account in 2021 are projected.
D. East Asia = Cambodia, China, Indonesia, Lao PDR, Malaysia, Mongolia, Myanmar, the Philippines,
Thailand, and Vietnam. Island economies = Fiji, Kiribati, Marshall Islands, Micronesia, Nauru, Palau,
Papua New Guinea, Samoa, Solomon Islands, Timor-Leste, Tonga, Tuvalu, and Vanuatu. Annual
average cost of disasters in percent of GDP. Disaster frequency is the annual average of natural
disaster incidents from 1980-2019 per 10,000 square kilometers of land.

64

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G LO BAL EC O NO MIC P ROS P EC TS | J U NE 2021

TABLE 2.1.1 East Asia and Pacific forecast summary

Percentage point
differences from January
2021 projections(Real GDP growth at market prices in percent, unless indicated otherwise)
2018

2019

2020e

2021f

2022f

2023f

EMDE EAP, GDP 1
6.5
5.8
1.2
7.7
5.3
5.2
0.6
7.1
4.8
4.8
GDP per capita (U.S. dollars)
5.8
5.1(Average including countries that report expenditure components in national accounts)2
EMDE EAP, GDP 2
1.2
7.8
5.4
5.3
6.5
5.8
PPP GDP
6.4
5.7
0.8
7.6
5.4
5.3
Private consumption
8.6
6.4
-1.5
9.9
5.8
5.7
8.9
6.8
7.6
7.5
Public consumption
9.7
7.8
Fixed investment
5.7
4.4
0.3
5.7
4.3
4.2
-1.5
6.9
5.5
4.6
Exports, GNFS 3
4.9
1.9
-4.0
7.4
6.5
5.6
Imports, GNFS 3
8.4
0.4
Net exports, contribution to growth
-0.8
0.4
0.6
0.0
-0.1
-0.2
Memo items: GDP
East Asia excluding China
5.3
4.8
-3.8
4.0
5.0
5.0
China
6.8
6.0
2.3
8.5
5.4
5.3
Indonesia
5.2
5.0
-2.1
4.4
5.0
5.1
Thailand
4.2
2.3
-6.1
2.2
5.1
4.3
Island economies 4
0.6
4.2
-6.3
2.7
4.7
3.2

2021f

2022f

0.3
0.3

0.1
0.1

0.3
0.4
0.2
0.0
-0.8
3.2
2.3
0.3

0.2
0.2
0.0
0.1
0.5
1.9
2.7
-0.1

-0.9
0.6
0.0
-1.8
-0.2

-0.2
0.2
0.2
0.4
0.0

Source: World Bank.
Note: e = estimate; f = forecast; PPP = purchasing power parity; EMDE = emerging market and developing economy. World Bank forecasts are frequently updated based on new informationand changing (global) circumstances. Consequently, projections presented here may differ from those contained in other Bank documents, even if basic assessments of countries’ prospects
do not differ at any given moment in time.
1. GDP and expenditure components are measured in average 2010-19 prices and market exchange rates. Excludes the Democratic People’s Republic of Korea and dependent territories.
2. Subregion aggregate excludes the Democratic People’s Republic of Korea, dependent territories, Fiji, Kiribati, the Marshall Islands, the Federated States of Micronesia, Myanmar, Palau,
Papua New Guinea, Samoa, Timor-Leste, Tonga, and Tuvalu, for which data limitations prevent the forecasting of GDP components.
3. Exports and imports of goods and nonfactor services (GNFS).
4. Includes Fiji, Kiribati, the Marshall Islands, the Federated States of Micronesia, Nauru, Palau, Papua New Guinea, Samoa, the Solomon Islands, Timor-Leste, Tonga, and Tuvalu.

TABLE 2.1.2 East Asia and Pacific country forecasts 1

Percentage point
differences from January
2021 projections(Real GDP growth at market prices in percent, unless indicated otherwise)
Cambodia
China
Fiji
Indonesia
Lao PDR
Kiribati
Malaysia
Marshall Islands
Micronesia, Fed. Sts.
Mongolia
Myanmar 2
Nauru
Palau
Papua New Guinea
Philippines
Samoa
Solomon Islands
Thailand
Timor-Leste
Tonga
TuvaluVanuatu
Vietnam

2018
7.5
6.8
3.5
5.2
3.8
6.3
4.8
3.3
0.2
7.0
6.4
5.7
4.1
-0.3
6.3
-2.2
3.9
4.2
-1.1
0.3
4.3
2.8
7.1

2019
7.1
6.0
-0.4
5.0
3.9
5.5
4.3
6.6
1.2
5.0
6.8
1.0
-4.2
5.9
6.0
3.5
1.2
2.3
1.8
0.7
4.1
3.0
7.0

2020e
-3.1
2.3
-19.0
-2.1
-1.9
0.4
-5.6
-4.5
-1.5
-5.4
1.7
0.7
-10.0
-3.9
-9.6
-3.5
-5.0
-6.1
-7.3
-1.5
-0.5
-10.0
2.9

2021f
4.0
8.5
2.6
4.4
3.0
4.0
6.0
-1.0
-3.5
5.9
-10.0
1.3
-4.0
3.5
4.7
-7.7
2.0
2.2
1.8
-3.0
3.0
4.0
6.6

2022f
5.2
5.4
8.2
5.0
2.6
4.6
4.2
3.0
2.5
6.1
..
0.9
12.0
4.2
5.9
5.6
4.5
5.1
3.7
2.3
4.0
3.9
6.5

2023f
6.0
5.3
6.9
5.1
2.5
4.7
4.4
2.0
1.0
7.0
..
1.0
6.0
2.4
6.0
4.9
4.3
4.3
4.3
2.8
3.0
3.3
6.5

2021f
0.0
0.6
0.0
0.0
0.0
-0.9
-0.7
0.5
-2.0
1.6
-12.0
1.3
2.0
0.0
-1.2
0.0
-1.2
-1.8
-1.3
2.3
-0.5
-2.0
-0.1

2022f
0.0
0.2
0.0
0.2
0.0
-0.2
-0.6
-1.0
-2.0
0.7
..
-1.1
-3.0
0.0
-0.1
0.0
1.0
0.4
-0.5
0.0
0.0
-0.1
0.0

Source: World Bank.
Note: e = estimate; f = forecast. World Bank forecasts are frequently updated based on new information and changing (global) circumstances. Consequently, projections presented here may
differ from those contained in other Bank documents, even if basic assessments of countries’ prospects do not significantly differ at any given moment in time.
1. Data are based on GDP measured in average 2010-19 prices and market exchange rates. Values for Timor-Leste represent non-oil GDP. For the following countries, values correspond to
the fiscal year: the Marshall Islands, Myanmar, the Federated States of Micronesia, and Palau (October 1– September 30); Nauru, Samoa, and Tonga (July 1–June 30).
2. Forecasts beyond 2021 are excluded due to a high degree of uncertainty.

Growth in Europe and Central Asia (ECA) is projected to reach 3.9 percent in 2021, with firming external
demand and elevated industrial commodity prices offsetting the negative impact of recent resurgences in new
COVID-19 cases. Regional growth is forecast to remain at 3.9 percent in 2022 as the recovery in domestic
demand gains traction. The outlook remains uncertain, however, with uneven vaccine rollouts and thewithdrawal of domestic macroeconomic support measures weighing on the regional recovery. Growth could be
weaker than projected if the pandemic takes longer than expected to abate, external financing conditions
tighten, or policy uncertainty and geopolitical tensions rise further. Legacies of the pandemic, including
slowdowns in physical and human capital accumulation, loom over the medium-term outlook if left
unaddressed.

Recent developments
Europe and Central Asia (ECA) continues tograpple with containing COVID-19 and remains
among the emerging market and developing
economy (EMDE) regions with the highest casesand deaths per capita. The true death toll is likely
even higher, with excess death statistics indicating
double-digit percentage increases in deaths relative
to pre-pandemic years in half of the region’s
economies. After declining in early 2021, daily
new COVID-19 cases accelerated rapidly alongside the emergence of new variants and increased
population mobility—restrictions on mobility,
including lockdowns, have helped bend theepidemiological curve and are gradually being
lifted (figure 2.2.1.A). Although the start ofvaccinations in most regional economies is apositive development, progress remains unevenacross the region, partly reflecting procurement
challenges (figure 2.2.1.B).
The 2.1 percent fall in regional output in 2020
was shallower than expected, as firming external
demand from the euro area buoyed industrial
production and goods trade volumes. Householdincomes were supported by robust remittance

Note: This section was prepared by Collette Mari Wheeler.

inflows amid increases in official transfers and thedrawdown of savings of migrant workers (figure
2.2.1.C; Dinarte et al. 2021; Quayyum andKpodar 2020; ILO 2021). The resilience ofactivity also reflected adaptation to containment
measures, as schools and storefronts pivoted
toward virtual settings, where feasible, while job
retention schemes reduced job losses (DemirgücKunt, Lokshin, and Torre 2020; ILO 2021;
World Bank 2021a).
The resurgence of COVID-19 cases in early 2021
has interrupted the incipient economic recovery.
Manufacturing and composite PMIs have falteredacross the region in recent months. Services
activity remains subdued, weighed down bycontinuing social distancing measures andsustained weakness in international tourism.
Elevated pandemic cases and spikes in geopoliticaltensions and policy uncertainty in some countries
have also triggered portfolio outflows, which werealready larger than in other EMDEs, exacerbating
currency depreciations. EMBI spreads havewidened in countries facing elevated geopoliticaltensions, policy uncertainty, or external financing
pressures (Belarus, Turkey, Ukraine).
Recent currency depreciations have put further
upward pressure on prices. Of the 17 ECA central
banks with inflation targets, nearly half reported
headline inflation above the upper bound of the

66

CHAPTER 2.2

G LO BAL EC O NO MIC P ROS P EC TS | J U NE 2021

FIGURE 2.2.1 ECA: Recent developments
A resurgence of new COVID-19 cases has weighed on the recovery inEurope and Central Asia (ECA). Vaccinations across the region areprogressing, but unevenly, with many countries below the world average ofvaccinations per person owing to bottlenecks in procurement andadministration. Despite continued disruptions from the pandemic, ECA
economies are expected to start to unwind policy support measures in
2021.
A. New daily COVID-19 cases andmobility

B. COVID-19 vaccine doses
administered and procured

Thousands
Percent change from baseline
New daily cases (7-day average)
300
20
Retail and recreation mobility (RHS)
250
0
200

Doses per 100 people
700

150

400

-20

100

-40

50

EU
ECA

600
500

300
200

-60
Feb-20Mar-20
Apr-20May-20Jun-20Jul-20Aug-20
Sep-20
Oct-20Nov-20Dec-20Jan-21
Feb-21
Mar-21
Apr-21
May-210100
0Administered

Procured

C. Economic activity and inward
remittances

D. Fiscal and monetary policy in 2021

Index,
Percent,
100 = January 2020
12m/12m moving average
130
20
Retail sales
Industrial production
115
10
Remittances (RHS)

Percent of ECA countries
Tightening
Unchanged
100

100

Loosening50

Jan-21

Mar-21

Nov-20Jul-20

Sep-20Mar-20May-20-20
Jan-20-1070

The large fiscal support packages delivered in
2020—equivalent, on average, to 7.5 percent of
GDP—are expected to be partially unwound thisyear (figure 2.2.1.D). The fiscal response to thepandemic, together with last year’s contraction in
output, is expected to leave median public debt at
54 percent of GDP by end-2022—nearly 15
percentage points higher than in 2019.
Nevertheless, targeted fiscal support, such as wage
subsidies and cash transfers, is estimated to havehelped avert a larger spike in poverty and job
losses (Kazakhstan, Turkey, Western Balkans;
World Bank 2021a). As countries gradually
withdraw support measures, however, job losses
could increase again.

Outlook75

085

in many ECA economies, increases in nonperforming and distressed loans are expected ascountries continue to phase out regulatory relief
and moratoriums on credit obligations.

25
0
Fiscal stance

Monetary policy rate

Sources: Duke Global Health Innovation Center (2021); Haver Analytics; International Monetary
Fund; Johns Hopkins University; World Bank.
Note: ECA = Europe and Central Asia; EU = European Union.
A. Figure shows 7-day moving average of new daily COVID-19 cases and of retail and recreation
mobility. Retail and recreation mobility refers to mobility trends for places like restaurants, cafes,
shopping centers, theme parks, museums, libraries, and movie theaters. The baseline for mobility
is the median value, for the corresponding day of the week, during the 5-week period
January 3–February 6, 2020. Last observation is May 28, 2021 for both COVID-19 cases and retailand recreation mobility.
B. Figure shows last observation of total vaccination administration, which is May 28, 2021, andconfirmed procurement of vaccine dose purchases, which is May 14, 2021. Yellow whiskers show theminimum-maximum range of ECA countries.
C. Last observation is March 2021.
D. Figure shows the share of countries with a positive (loosening fiscal stance), negative(tightening fiscal stance), and unchanged fiscal impulse in 2021 using +/- 0.5 percentage point ofpotential GDP threshold, and the share of countries that experienced a policy rate hike(tightening monetary policy rate) and cut (loosening monetary policy rate). Fiscal impulse is definedas the change in the cyclically adjusted primary balance (CAPB) from the previous year. Sample
includes 10 ECA countries for fiscal stance and 19 ECA countries for monetary policy rate.

target band in early 2021. As a result of
inflationary pressures, policy interest rates havebeen raised in one-third of the region’s economies
thus far in 2021 (Armenia, Belarus, Georgia,
Kyrgyz Republic, the Russian Federation,
Tajikistan, Turkey, Ukraine). Although thebanking sector has adequate liquidity and buffers

ECA’s economy is forecast to expand 3.9 percent
in 2021, stronger than previously projected partly
owing to a more robust than anticipated recovery
in neighboring euro area (figure 2.2.2.A-B;
chapter 1). Nonetheless, the outlook remains
challenging especially given continued disruptions
from the pandemic, combined with tightermonetary policy as well as elevated policy
uncertainty and geopolitical tensions. The outlook
is predicated on a faster pace of vaccination in thesecond half of the year in ECA’s largest
economies. Widespread vaccination in otherregional economies is expected to lag the region’slargest economies by about one to two quarters.
Several countries Central Asia, Eastern Europe,and the Western Balkans face bottlenecks related
to the production, procurement, or delivery of
vaccines secured through the COVAX facility orother agreements.
Growth is expected to remain at 3.9 percent in
2022, as the recovery in domestic demand offsets a
continued drag from the withdrawal ofmacroeconomic policy support. Despite theimprovement, per capita GDP in 2022 is forecast
to be 5.3 percent below the level expected prior to
the pandemic. Meanwhile, the continued disrupt-

G LO BAL EC O NO MIC P ROS P EC TS | J U NE 2021

In Turkey, following three years of subdued
growth amid recurring financial market pressuresand the COVID-19 crisis, growth is projected torise to 5 percent in 2021, as exports benefit fromfirming external demand, particularly in the euroarea. The expansion is then set to moderate to 4.5
percent in 2022, with activity supported by agradual pick up in domestic demand. The
projected pace of recovery will buoy income
relative to the regional average. The forecast masks
growing vulnerabilities (World Bank 2021a). The
economy’s vulnerabilities include reoccurring
COVID-19 outbreaks and a slowdown invaccination progress, weak international tourism,sharp tightening of external financing conditions,A. Contributions to forecast revisions
for ECA GDP growth

B. GDP forecast revisions for 2021, byvaccination progress

Percentage point
1.0

Percentage point

0.8

Russian Federation
TurkeyCE
Others

0.6

0.8
0.6
0.4

0.4
0.2
0.2
0.0
Above EMDE Below EMDE
level
level

0.0

2020

2021

C. GDP growth in ECA, by subregion

ECA

D. GDP per capita changes from prepandemic projections for 2022, byregion and country
Percent
2
0
-2
-4
-6
-8
EE

CA

SCC

ECA

WBK

-10
CE

The Russian economy is projected to grow 3.2
percent in 2021, supported by firming domestic
demand and elevated energy prices. Although new
COVID-19 cases have somewhat stabilized,
vaccine reluctance is impeding inoculation. The
escalation of geopolitical tensions in 2021,
including additional U.S. sanctions, and increases
in the policy rate from record lows are also
weighing on the outlook. Nonetheless, therecovery is expected to remain steady in 2022, at
3.2 percent, as the pandemic’s effects wane andindustrial commodity prices stabilize. Despite thisimprovement, per capita income in 2022 will be
1.8 percent below the level expected before thepandemic.

Forecasts for growth in Europe and Central Asia (ECA) have been revised
upward, as supportive external conditions help offset an intensifying
pandemic. Nevertheless, the recovery in 2021-22 will not be sufficient torecoup losses from 2020, with output in 2022 projected to be below prepandemic projections in most of the region’s economies.

TurkeyThe strength and speed of countries’ recoveries
will depend on the effectiveness of pandemic
management, the duration of lockdowns, and thepace of vaccine deployment. Tourism-dependent
economies will continue to face particularchallenges amid depressed international travel(UNWTO 2021). The recovery is also expected tobe slower in countries suffering from heightened
geopolitical tensions, as weak investor confidence
weighs on private investment.

FIGURE 2.2.2 ECA: Outlook

RussianFederation

tion of education for millions of school-children
and a sharp decline in investment, particularly
foreign direct investment (FDI), are expected tocontribute to a further slowdown in productivity
growth over a prolonged period (figure 2.2.2.C-D;
UNCTAD 2021, World Bank 2021a, WorldBank 2021b).

67

E URO PE AND CE NTRAL AS IA

Sources: Our World in Data; World Bank.
Note: EMDE = emerging market and developing economies; CA = Central Asia; CE = Central
Europe; ECA = Europe and Central Asia; EE = Eastern Europe; EU = European Union; SCC = South
Caucasus; WBK = Western Balkans. Aggregates calculated using constant GDP weights at average
2010-19 prices and market exchange rates. Shaded areas indicate forecasts.
A. Figure shows the contribution to forecast revisions between the current and January 2021 editionsof the Global Economic Prospects report.
B. Figure shows unweighted average of percentage-point difference between the current andJanuary 2021 editions of the Global Economic Prospects report. Vaccine progress above (below)
EMDE level refers to ECA countries with a total number of doses administered per hundred people ofthe national population higher (lower) than the ratio for EMDEs.
D. Figure shows the gaps between the current projections and January 2020 editions of the Global
Economic Prospects report.

and a recent rise in policy uncertainty, especiallyabout monetary policy
Growth in Central Europe is projected to reboundto 4.6 percent in 2021 and remain at that pace in
2022, supported by a recovery in trade as activity
improves in the euro area. Exceptional policy
accommodation is expected to continue through2021, including near-zero policy interest rates in
Hungary and Poland. The sizable European
Union (EU) fund packages for members states—
including for all Central European economies—

68

CHAPTER 2.2

G LO BAL EC O NO MIC P ROS P EC TS | J U NE 2021

FIGURE 2.2.3 ECA: Risks
Although countries in ECA were among the first to begin vaccination
campaigns, widespread progress has been constrained by logisticalchallenges and general vaccine reluctance. Meanwhile, continued
weakness in investment could exacerbate the slowdown in long-run
growth, especially absent progress on reforms to strengthen governance.
Aside from the pandemic, ECA faces the risk of financial stress. Inflationarypressures are rising across the region and may limit monetary authorities’ability to respond to adverse shocks.
A. Willingness to receive a COVID-19
vaccinePercent
Turkey8
ECA

Vaccinated or willing
Hesitant

Percent ofrespondents
100

B. Long-term investment growthforecasts

80

Russian Federation
Central Europe

6

60
4

40
20

2

C. Sources of reform advances andsetbacks in ECA countries, 1998-2018

Regulation
Corruption

2027

2026

2025

2024

2023

2022

Percent, year-on-year20
16

Inflation
Inflation target
Inflation upper target

12

80

8

60

4

40

Armenia

Georgia

RussianFederation

Setbacks

Kazakhstan

Advances

Ukraine0

BelarusTurkey0

20

KyrgyzRepublic

100

Government
Rule of law
More than one

D. Consumer price inflation versus
targetTajikistan

Percent

0

2021

CA

RussianFederation

EE

SCC

CE

WBK

TurkeyECA

0Sources: Consensus Economics; Fan et al. (2021); Haver Analytics; Our World in Data; Worldwide
Governance Indicators, World Bank.
Note: BiH = Bosnia and Herzegovina; CA = Central Asia; CE = Central Europe; ECA = Europe andCentral Asia; EE = Eastern Europe; RUS = Russian Federation; SCC = South Caucasus; WBK =Western Balkans. Shaded areas indicate forecasts. Aggregates calculated using constant GDP
weights at average 2010-19 prices and market exchange rates.
A. Survey results are based on 236,000 interviews conducted in 18 countries between April 1-30,
2021. Bars indicate data on share of population receiving at least one vaccine dose and responses toa vaccine acceptance question. Responses to the vaccine acceptance question are weighted toreflect the share of population who have not yet received a vaccine. Survey respondents are asked,"If a vaccine to prevent COVID-19 were offered to you today, would you choose to get vaccinated?”
Aggregates are calculated using population weights.
B. Long-term prospects refer to 10-year-ahead forecasts. The horizontal axis shows the year whenlong-term forecasts are surveyed. Sample includes 8 ECA countries.
C. Based on 27 episodes of reform advances and 7 episodes of reform setbacks identified in 23 ECA
countries using the World Bank’s Worldwide Governance Indicators.
D. Last observation is March 2021 for Tajikistan and Ukraine, and April 2021 for others.
.

should help mitigate the weakness in investment.
The boost, however, could be tempered by low
absorption of the funds due to challenges relating
to administrative capacity and governance.
Growth in the Western Balkans is expected torebound to 4.4 percent in 2021 and to moderate
to 3.7 percent in 2022, assuming that consumer

and business confidence is restored as vaccination
rollout accelerates, and that political instability
eases. Activity in tourism-dependent economies,
particularly Albania and Montenegro, willcontinue to be hampered by international travel
restrictions. Meanwhile, medium-term growth inAlbania and North Macedonia should be boosted
by accelerating structural reforms in preparation
for EU membership, provided negotiations
surrounding the accession process are not further
delayed (Rovo 2020). The subregion is also
expected to benefit from the EU’s recently
adopted Economic and Investment Plan, which
will mobilize funding to support competitivenessand inclusive growth, as well as the green anddigital transition.
After suffering the sharpest collapse in output
among the ECA subregions in 2020 amid armed
conflict, the South Caucasus is projected to return
to positive growth, expanding 3.6 percent in
2021; growth is then expected to strengthen to 4.2
percent in 2022. The recovery in early 2021
remains muted, reflecting subdued domestic
demand due to the pandemic, as well as an
escalation in domestic political tensions (Armenia)
and continued weakness in transport and tourism(Georgia). Monetary policy has also tightened,with Armenia and Georgia having hiked policy
rates. The current forecast is predicated on thedissipation of the shocks related both to thepandemic and to conflict, and on a recovery intourism alongside improving consumer andbusiness confidence. Growth in Azerbaijan is
expected to be supported by stabilization of oil
prices as well as investment and reconstruction
spending. The November 2020 ceasefire
agreement between Armenia and Azerbaijan havealleviated geopolitical tensions in the region,
although risks to stability remain elevated.
Growth in Eastern Europe in the near term is
projected to be the weakest among the ECA
subregions, rising only to 1.9 percent in 2021
and 2.8 percent in 2022. The banking sector
remains fragile amid high dollarization in some
economies, with sharp currency depreciations andweak activity having eroded bank asset quality. A
surge in inflation, especially in Ukraine—thesubregion’s largest economy—triggered more
restrictive monetary policy in early 2021. The

G LO BAL EC O NO MIC P ROS P EC TS | J U NE 2021

recovery is constrained by continued challenges
related to subdued domestic demand andstructural weakness, as well as policy uncertainty
over upcoming elections in Moldova and ongoinggeopolitical tensions in Ukraine and Belarus, withthe latter facing newly imposed internationalsanctions. Growing external imbalances, slower
reform momentum, and political tensions willcontinue to weigh on private investment.
In Central Asia, growth is forecast to recover to
3.7 percent in 2021 and 4.3 percent in 2022—
well below historical averages. The economy isexpected to be supported by a modest rise incommodity prices, relaxation of OPEC+
production cuts (Kazakhstan), and firming FDI as
the subregion deepens its global and regional
integration. In Uzbekistan, growth should
continue to benefit from the implementation of an
ambitious reform agenda, which progressed lastyear despite formidable headwinds from thepandemic. However, the rebound in Central Asia
has been dampened by rising policy uncertainty,
particularly in the Kyrgyz Republic, following
political tensions and social unrest. Geopoliticaltensions have also increased in Central Asia amid
conflict over a border dispute between the Kyrgyz
Republic and Tajikistan. Rising inflationarypressures prompted increases in key policy interest
rates in the Kyrgyz Republic and Tajikistan.

Risks
The forecast is subject to predominantly downside
risks, including those related to the pandemic(World Bank 2021a; World Bank 2021c).
Although the region has administered more
vaccine doses per person relative to the world
average, vaccine distribution and progress remain
highly uneven; only about one-third of ECA’s
economies are above the world average, while therest continue to trail the world average due tologistical challenges and vaccine hesitancy. Absent
clear and consistent communication to strengthen
public trust, the suspension of vaccines due tosafety concerns could contribute to higher-thanexpected vaccine reluctance (figure 2.2.3.A; WorldBank 2021a). The combination of supply
bottlenecks and subdued vaccine demand in some
ECA countries, juxtaposed with widespread

E URO PE AND CE NTRAL AS IA

vaccination in others, could contribute to an
uneven regional recovery.
The pandemic could also exacerbate the slowdown
in investment in physical and human capital,
which was already steep in ECA due tolongstanding structural challenges (Dieppe 2020;
World Bank 2020a). Following a collapse in fixed
investment, forecasts for long-term investment
growth point to a decline 1.7 percentage points
over the next decade (figure 2.2.3.B; Consensus
Economics 2021, UNCTAD 2021). The pandemic has also dented the accumulation of humancapital through school closures and sustained
spells of unemployment. On the upside, however,the pandemic offers opportunities to lift long-term
growth. Digitalization could be harnessed tostrengthen governance by enhancing public
efficiency and transparency (figure 2.2.3.C; WorldBank 2021a).
The risk of financial stress also looms over theregion’s outlook. Renewed policy uncertainty has
exacerbated the decline in portfolio inflows andreignited currency depreciation and reserve losses.
As a result, external financing pressures arebuilding, particularly in countries with a large
share of foreign-currency-denominated debt. An
acceleration in inflation has further constrained
the capacity of some central banks to buffer the
impact of additional negative external shocks, with
about one-third of the region’s economies forced
to raise policy rates in 2021 (figure 2.2.3.D). A
sharper erosion of investor sentiment could
abruptly tighten financing conditions, and lead tocascading defaults and rising non-performing
loans. Corporate balance sheet pressures havecontinued to rise as authorities unwind liquidity
support and regulatory forbearance, putting strain
on the banking sector.
The possibility of intensifying geopolitical tensions
is also a downside risk in ECA, and could beaccompanied by additional sanctions and financial
market pressures. The region could be destabilized
by an escalation of conflict in Ukraine or between
the Kyrgyz Republic and Tajikistan, as well as byelevated stability risks linked to post-conflictsettlements between Armenia and Azerbaijan.
Additional political pressures in Belarus or the

69

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CHAPTER 2.2

G LO BAL EC O NO MIC P ROS P EC TS | J U NE 2021

Kyrgyz Republic could weaken the outlook in
Eastern Europe and Central Asia. Disagreements
between the EU and other major economies could
also lead to additional sanctions that could havespillover effects into some ECA countries. A

further rise in policy uncertainty, particularly insome of the region’s large economies, could also
undermine the recovery if it triggers financial
stress.

TABLE 2.2.1 Europe and Central Asia forecast summary

Percentage point
differences from January
2021 projections(Real GDP growth at market prices in percent, unless indicated otherwise)

EMDE ECA, GDP 1
GDP per capita (U.S. dollars)
EMDE ECA, GDP excl. Turkey

2018

2019

2020e

2021f

2022f

2023f

2021f

2022f

3.5

2.7

-2.1

3.9

3.9

3.5

0.6

0.1

3.1

2.3

-2.4

3.7

3.7

3.4

0.7

0.1

3.7

3.1

-3.2

3.7

3.7

3.2

0.8

0.2

(Average including countries that report expenditure components in national accounts) 2
EMDE ECA, GDP 2

3.4

2.5

-2.1

4.0

3.9

3.4

0.7

0.1

PPP GDP

3.4

2.4

-2.1

3.9

3.8

3.3

0.6

0.0

Private consumption

3.9

3.6

-3.8

3.7

3.9

3.6

0.0

0.8

Public consumption

2.9

3.3

2.9

0.8

0.7

1.6

1.5

-0.1

Fixed investment

2.2

-0.2

-2.3

4.9

6.6

5.0

0.3

0.1

Exports, GNFS 3

5.9

3.6

-7.2

5.6

5.5

5.4

-0.3

-0.4

Imports, GNFS 3

3.3

2.9

-5.2

5.1

7.0

5.6

-1.7

-0.3

Net exports, contribution to growth

1.1

0.4

-1.0

0.3

-0.3

0.1

0.5

0.0

Memo items: GDP
Commodity exporters 4

3.0

2.5

-2.9

3.3

3.4

2.8

0.6

0.2

Commodity importers 5

4.0

2.8

-1.3

4.6

4.4

4.2

0.8

-0.1

Central Europe 6

4.9

4.4

-3.7

4.6

4.6

4.0

1.0

0.4

Western Balkans 7

4.0

3.6

-3.4

4.4

3.7

3.8

0.9

0.0

Eastern Europe 8

3.4

2.7

-3.2

1.9

2.8

2.6

0.7

0.3

South Caucasus 9

2.8

3.6

-5.2

3.6

4.2

4.0

1.1

-0.6

Central Asia10

4.5

4.9

-1.5

3.7

4.3

5.1

0.7

0.4

Russian Federation

2.8

2.0

-3.0

3.2

3.2

2.3

0.6

0.2

TurkeyPoland

3.0
5.4

0.9
4.7

1.8
-2.7

5.0
3.8

4.5
4.5

4.5
3.9

0.5
0.3

-0.5
0.2

Source: World Bank.
Note: e = estimate; f = forecast; PPP = purchasing power parity; EMDE = emerging market and developing economy. World Bank forecasts are frequently updated based on new informationand changing (global) circumstances. Consequently, projections presented here may differ from those contained in other Bank documents, even if basic assessments of countries’ prospects
do not differ at any given moment in time. Due to lack of reliable data of adequate quality, the World Bank is currently not publishing economic output, income, or growth data for
Turkmenistan, and Turkmenistan is excluded from cross-country macroeconomic aggregates.
1. GDP and expenditure components are measured in average 2010-19 prices and market exchange rates.
2. Aggregates presented here exclude Azerbaijan, Bosnia and Herzegovina, Kazakhstan, Kosovo, the Kyrgyz Republic, Montenegro, Serbia, Tajikistan, Turkmenistan, and Uzbekistan, forwhich data limitations prevent the forecasting of GDP components.
3. Exports and imports of goods and nonfactor services (GNFS).
4. Includes Armenia, Azerbaijan, Kazakhstan, the Kyrgyz Republic, Kosovo, the Russian Federation, Tajikistan, Ukraine, and Uzbekistan.
5. Includes Albania, Belarus, Bosnia and Herzegovina, Bulgaria, Croatia, Georgia, Hungary, Moldova, Montenegro, North Macedonia, Poland, Romania, Serbia, and Turkey.
6. Includes Bulgaria, Croatia, Hungary, Poland, and Romania.
7. Includes Albania, Bosnia and Herzegovina, Kosovo, Montenegro, North Macedonia, and Serbia.
8. Includes Belarus, Moldova, and Ukraine.
9. Includes Armenia, Azerbaijan, and Georgia.
10. Includes Kazakhstan, the Kyrgyz Republic, Tajikistan, and Uzbekistan.

G LO BAL EC O NO MIC P ROS P EC TS | J U NE 2021

71

E URO PE AND CE NTRAL AS IA

TABLE 2.2.2 Europe and Central Asia country forecasts 1

Percentage point
differences from January
2021 projections(Real GDP growth at market prices in percent, unless indicated otherwise)
2018

2019

2020e

2021f

2022f

2023f

2021f

2022f

Albania

4.1

2.2

-3.3

4.4

3.7

3.7

-0.7

-0.7

Armenia

5.2

7.6

-7.6

3.4

4.3

5.3

0.3

-0.2

Azerbaijan

1.5

2.2

-4.3

2.8

3.9

3.4

0.9

-0.6

Belarus

3.1

1.4

-0.9

-2.2

1.9

1.2

0.5

1.0

Bosnia and Herzegovina 2

3.7

2.8

-4.3

2.8

3.5

3.7

0.0

0.0

Bulgaria

3.1

3.7

-4.2

2.6

3.3

3.4

-0.7

-0.4

Croatia

2.8

2.9

-8.0

5.5

6.2

5.7

0.1

2.0

Georgia

4.9

5.0

-6.1

6.0

5.0

5.0

2.0

-1.0
0.4

Hungary

5.4

4.6

-5.0

6.0

4.7

4.3

2.2

Kazakhstan

4.1

4.5

-2.6

3.2

3.7

4.8

0.7

0.2

Kosovo

3.8

4.9

-6.9

4.0

4.5

4.1

0.3

-0.4

Kyrgyz Republic

3.8

4.6

-8.6

3.8

4.3

4.5

0.0

-0.2

Moldova

4.3

3.6

-7.0

3.8

3.7

3.8

0.0

0.0

Montenegro

5.1

4.1

-15.2

7.1

4.5

3.5

1.0

0.6

North Macedonia

2.9

3.2

-4.5

3.6

3.5

3.4

0.0

0.0

Poland

5.4

4.7

-2.7

3.8

4.5

3.9

0.3

0.2

Romania

4.5

4.1

-3.9

6.0

4.5

3.9

2.5

0.4

Russian Federation

2.8

2.0

-3.0

3.2

3.2

2.3

0.6

0.2

Serbia

4.4

4.2

-1.0

5.0

3.7

3.9

1.9

0.3

Tajikistan

7.6

7.4

4.5

5.3

5.6

6.0

1.8

0.1

Turkey

3.0

0.9

1.8

5.0

4.5

4.5

0.5

-0.5

Ukraine

3.4

3.2

-4.0

3.8

3.1

3.1

0.8

0.0

Uzbekistan

5.4

5.8

1.6

4.8

5.5

5.8

0.5

1.0

Source: World Bank.
Note: e = estimate; f = forecast. World Bank forecasts are frequently updated based on new information and changing (global) circumstances. Consequently, projections presented here may
differ from those contained in other Bank documents, even if basic assessments of countries’ prospects do not significantly differ at any given moment in time. Due to lack of reliable data ofadequate quality, the World Bank is currently not publishing economic output, income, or growth data for Turkmenistan, and Turkmenistan is excluded from cross-country macroeconomic
aggregates.
1. Data are based on GDP measured in average 2010-19 prices and market exchange rates, unless indicated otherwise.
2. GDP growth rate at constant prices is based on production approach.

Growth in Latin America and the Caribbean (LAC) is projected to be 5.2 percent in 2021—a reboundinsufficient to return GDP to 2019 levels this year after a historically deep recession in 2020. The rebound will
be supported by moderate progress in vaccine rollouts, relaxation of mobility restrictions, and improved external
economic conditions. Per capita income losses will still be deep in 2022, particularly for small island economies
in the Caribbean. Although spillovers from robust growth and additional fiscal support in the United States
through trade and confidence channels are an upside risk to the baseline forecast, the balance of risks is tilted tothe downside. Key downside risks include a slower-than-expected COVID-19 vaccine rollout; further surges in
new COVID-19 cases, including from variant strains of the virus; adverse market reactions from social unrest
or strained fiscal conditions; and disruptions related to social unrest or to climate change and natural disasters.

Recent developments
Latin America and the Caribbean (LAC)
continues to be severely affected by COVID-19.
After slowing in the first two months of this year,
new cases have spiked again, surpassing 2020
peaks in many countries. The region accounts
about 30 percent of confirmed deaths worldwide,
nearly four times its share of the global
population. Some countries are grappling with thewidescale spread of COVID-19 variants.
Mobility restrictions were tightened in numerous
countries (including Argentina, Barbados, Brazil,
Colombia, Ecuador, Paraguay, Peru, andUruguay) in the first half of this year, hindering
economic activity especially in the services sector,
which was already lagging the rebound in theindustrial sector (figure 2.3.1.A). Vaccine
administration is proceeding unevenly acrosscountries. About half of the population of Chileand Uruguay had received at least one dose of
vaccine as of late May, as had approximately onequarter in the Dominican Republic, Dominica,
Barbados, and Guyana. But many other countries
have scarcely begun.

Note: This section was prepared by Dana Vorisek.

In several respects, external economic conditions
have improved since the start of the year. Prices ofkey commodities have risen, bolstering
government revenues (figure 2.3.1.B). Remittanceinflows remain robust, supporting consumer
spending in a swath of highly remittance-reliant
economies (El Salvador, Guatemala, Honduras,
Jamaica, Nicaragua), in part reflecting substantial
income support and social transfers in the UnitedStates. Although international tourist arrivals
remain a small fraction of pre-pandemic levels inmost of the Caribbean, arrivals have approachedhalf of pre-pandemic levels in recent months in
the Dominican Republic and Mexico (figure
2.3.1.C).
Sovereign borrowing costs have risen in recent
months, after an earlier narrowing of spreads over
10-year U.S. Treasury bonds in much of theregion between April 2020 and January 2021.
Spreads are especially elevated in countries
including Argentina, Belize, and Ecuador,
although they have fallen in Ecuador since early
March. Portfolio inflows to the region haveslowed, and currencies have depreciated against
the U.S. dollar. Headline inflation has risen in
many countries, but from a low level, in part due
to increasing energy and food prices in many
countries. Inflation has recently breached theupper bound of inflation target bands in three of74

CHAPTER 2.3

G LO BAL EC O NO MIC P ROS P EC TS | J U NE 2021

FIGURE 2.3.1 LAC: Recent developments
Economic conditions in Latin America and the Caribbean (LAC) are
improving after a deep recession in 2020. External conditions havebecome increasingly supportive in important respects: key commodity
prices have risen, remittance inflows remain robust, and new fiscal support
in the United States will likely benefit the region. But tourism remains
subdued. The damage from the pandemic—including job and income
losses and poverty increases—is severe.

Index, 100 = Dec. 2019
220
Oil
Iron ore

Services

Industry

Copper180

Soybeans

140
100
60
Apr-21

Dec-20Aug-20

Apr-20Dec-192021Q1

2020Q4

2020Q3

2020Q2

2020Q1

20
2019Q4

2019Q3

Index, 100 =2019Q4
105
100
95
90
85
80
75
70
2019Q2

B. Commodity prices

2019Q1

A. Services and industry sector
growthNicaragua, Peru, and St. Lucia; legislativeelections in Argentina, El Salvador, and Mexico).
The scars of the pandemic are severe. Althoughemployment has risen from mid-2020 lows, it has
not returned to pre-pandemic levels (figure
2.3.1.D). Female, young, informal, and low-wage
workers have disproportionately suffered job losses(ECLAC 2021; World Bank 2021e). Labor force
participation has declined substantially, increasing
concerns that professional skills are being eroded.
Income losses have raised poverty and foodinsecurity in many countries, despite thesubstantial expansion in social safety nets (Bracco
et al. forthcoming; Busso et al. 2020; Mahler et al.
2021).

Outlook
C. International tourist arrivals

D. Change in employment, end-2019
to present

Thousands
1400

Percent
0800Millions
Dominican Rep. 5
JamaicaRest of Caribbean 4
Mexico (RHS)
3

600

2

1200
1000

FormalInformal

-5
-10
-15

400

1
MexicoChile

Colombia-20

Brazil

Apr-21

Jan-21

Oct-20Jul-20

Apr-20Jan-20

Oct-19Jul-19Apr-190

Jan-19

0

Peru

200

Sources: Haver Analytics; national sources; World Bank.
Note: LAC = Latin America and the Caribbean.
A. Bars show the GDP-weighted average of Argentina, Brazil, Chile, Colombia, Mexico, and Peru.
Growth rates for Argentina for 2021Q1 are estimated based on available information.
B. Last observation is April 2021.
C. “Rest of Caribbean” includes Antigua and Barbuda, The Bahamas, Belize, Grenada, and St. Lucia.
Data are seasonally adjusted. Last observation is April 2021 for the Dominican Republic, March 2021
for Jamaica and for rest of the Caribbean, and February 2021 for Mexico.
D. Bars show the decline in the number of people employed between December 2019 and the latest
available month. Bars show three-month moving averages. For Peru, formal employment covers only
metropolitan Lima. Last observation for both formal and informal employment is March 2021 for
Brazil, Chile, and Mexico; February 2021 for Colombia; and December 2020 for Peru.

the eight countries using them—Brazil, theDominican Republic, and Mexico.
With fiscal strains already severe and the worst
economic effects of the pandemic assumed to havepassed, additional spending and tax relief related
to the pandemic is winding down in mostcountries. Uncertainty about the direction of
economic policy has become more prominent,
however, with countries accounting for 45 percentof the region’s GDP holding elections in 2021
(general elections in Chile, Ecuador, Honduras,

Regional growth is projected to be 5.2 percent in
2021. This is a modest recovery after a 6.5 percent
contraction in 2020, deeper than recessions during
World War I and the Great Depression (figure
2.3.2.A). Although the forecast for 2021 has beenrevised upward since January, the rebound in theregion is still weak relative to other EMDE
regions. LAC is one of the two emerging market
and developing economy (EMDE) regions, alongwith the Middle East and North Africa, where real
GDP is expected to be lower in 2021 than in
2019.
The baseline near-term outlook for the region
assumes moderate progress in vaccine rollouts inmost countries, less stringent mobility restrictions
than in 2020, positive spillovers from strong
growth in advanced economies and fiscal support
in the United States, and a broad-based rise incommodity prices. Growth in 2022 is projected tosoften, to 2.9 percent, as the boost from thesefactors wanes (tables 2.3.1, 2.3.2). Tourism-reliant
economies are projected to take longer thancommodity-exporting economies to reach 2019
levels of output (ﬁgure 2.3.2.B).
Still benign global financing conditions and afaster-than-expected resumption of economic
activity is supporting more robust investment
growth this year than projected in January. This
upturn follows a seven-year declining trend.

G LO BAL EC O NO MIC P ROS P EC TS | J U NE 2021

By 2022, per capita real GDP in LAC is projected
to be 1.5 percent below its 2019 level. Numerous
economies, particularly tourism-reliant economies(The Bahamas, Barbados, Belize, Dominica,
Grenada, Jamaica, Panama, St. Lucia), facesubstantially deeper losses (figure 2.3.2.D).
Brazil’s economy is projected to expand by 4.5
percent in 2021. Private consumption will beboosted by a fresh round of emergency payments
to households, although social transfers will be
substantially smaller than in 2020. Investment
growth will be supported by benign domestic andinternational credit conditions. Growth in services
output is expected to continue lagging industrial
output growth in the short term, owing to theeffects of COVID-19. Growth is projected tomoderate to 2.5 percent in 2022 as domestic
policy support is withdrawn and external
conditions become less supportive.
In Mexico, growth of 5 percent is projected for
2021, after an 8.3 percent contraction in 2020.
The manufacturing industry, but also the services
sector, is expected to benefit from increased export
demand associated with robust growth in the
United States, which receives four-fifths of
Mexico’s exports. Growth is envisaged to soften to
3 percent in 2022 as the fiscal impulse in the
United States fades, but domestic demand will besupported by growing COVID-19 vaccination
coverage.
In Argentina, growth is expected to rebound to
6.4 percent in 2021, reflecting ample sparecapacity following a three-year contraction thatpushed real GDP back to approximately its 2009
level. Thereafter, the temporary growth boost will
moderate, with growth projected to be 1.7 percent
in 2022.
In Colombia, growth is projected to reach 5.9
percent in 2021, underpinned by improved

75

FIGURE 2.3.2 LAC: Outlook
Growth in LAC is expected to reach 5.2 percent in 2021, a modest reboundafter a historically deep recession in 2020. A pickup in investment is
expected to follow several years of weakness; however, investment in 2022
is still expected to return only to about the level where it stalled from 2016
to 2019. Tourism-reliant economies are projected to take longer thancommodity-exporting economies to reach 2019 levels of output. Many
countries in LAC, especially those in the Caribbean, will still have percapita GDP below 2019 levels in 2022 and beyond.
A. LAC growth

B. LAC GDP, by subgroup

Percent
Median10Median recession
8
6
4
2
0
-2
-4
-6
-8
1901 1921 1941 1961 1981 2001 2021

C. LAC GDP components

D. Change in per capita GDP, 2019 to
2022
Percent
0
-4
-8
-12
-16

Median LAC economy-20
Suriname
BelizeSt. Lucia
Bahamas, The
Barbados
EcuadorPanamaDominica
GrenadaHaiti
Honduras
Argentina
Bolivia
Jamaica

However, even by 2022, the level of investment is
projected to only have returned to about where it
stalled prior to the pandemic, and will still be well
below the high reached in 2013, prior to a sharp
drop in global commodity prices (figure 2.3.2.C).
This will continue to weigh on potential growthprospects (World Bank 2021c).

LATIN AME RIC A AN D THE C ARIBBE AN

Sources: University of Groningen (Maddison Project Database, Penn World Table); Haver Analytics;
national sources; World Bank.
Note: LAC = Latin America and the Caribbean.
B.C. Grey area indicates forecasts.
D. Figure shows economies with the largest gaps. Antigua and Barbuda and St. Kitts and Nevis are
not shown but have gaps larger than the regional median.

external conditions and a rebound in domestic
demand. After a slow start, any further delays in
the COVID-19 vaccination would be a drag on
the recovery.
Chile’s economy is forecast to expand by 6.1
percent in 2021 as COVID-19 vaccines continue
to be administered at a robust pace and private
consumption is boosted by pension fundwithdrawals allowed during the pandemic. Export
growth will improve in line with rising demand inadvanced economies and China.
Growth in Peru is projected to rebound to 10.3
percent in 2021—after a deep recession in 2020,
supported by private consumption growth and an

76

CHAPTER 2.3

G LO BAL EC O NO MIC P ROS P EC TS | J U NE 2021

FIGURE 2.3.3 LAC: Risks
The balance of risks to the regional growth forecast is to the downside. Key
downside risks are slower-than-expected COVID-19 vaccine rollouts,
continued surges in new cases, adverse market reactions to strained fiscal
conditions, and disruptions related to social unrest and natural disasters.
Spillovers through trade and confidence channels as the U.S. economy
gains momentum are an upside risk to the growth forecast for the region,
particularly for Mexico and several Central American economies.
A. COVID-19 vaccination
Vaccinations per hundred people
50
Advanced economies
40

B. Debt

EMDEs

30

Percent of GDP
90

EMDE median

80
70

20
10

60
Chile
Uruguay
Dominican Rep.
Dominica
Barbados
GuyanaBrazilArgentina
El Salvador
BelizeMexicoColombia
Bolivia
Ecuador
Peru
JamaicaParaguay
Honduras

0

50
40
30
2019

2020

2021

2019

Government debt

2020

2021

External debt

C. Duration of full school closures

D. Exports to the United States, 201519

Number of days
400

Percent of GDP
30

350

25

300

20
15

250

Growth in the Caribbean is projected to reach 4.7
percent this year, supported in part by low
COVID-19 caseloads in most countries. With therecovery in tourism still sluggish, however, the2021 growth outlook for most of the tourismreliant economies in the Caribbean has beenrevised downward since January.

Risks

10

200

international tourist arrivals partially recover fromsteep declines in 2020, and key commodity prices
rise. In Panama, which suffered the highest percapita number of COVID-19 cases and one of themost severe GDP contractions in LAC in 2020,
the economy is expected to benefit from a rapid
decline in new COVID-19 cases in the first half of2021. Public transportation projects will support arebound in investment. Reconstruction after two
major hurricanes in late 2020 will support the2021 growth rebound in Guatemala andHonduras, although agricultural production
capacity may take longer to recover.

5

150

Rest of
LAC

Honduras

LAC SAR MNA EAP ECA SSA AMEs

Costa Rica0

El Salvador

Mexico50

Nicaragua

0100

Sources: Hale et al. (2021); International Monetary Fund; Our World in Data (database); World
Integrated Trade Solution (WITS); World Bank.
Note: AMEs = advanced economies; EAP = East Asia and Pacific; ECA = Europe and Central Asia;
EMDEs = emerging market and developing economies; LAC = Latin America and the Caribbean;
MNA = Middle East and North Africa; SAR = South Asia; SSA = Sub-Saharan Africa.
A. Bars show cumulative share of the population of each country or group of countries that hasreceived at least one vaccination. Sample includes 152 EMDEs and 37 advanced economies. Lastobservation is May 26, 2021.
B. Orange whiskers represent interquartile range for LAC sample. Sample includes 24 LAC
economies and 151 EMDEs for government debt and 16 LAC economies and 47 EMDEs for external
debt.
C. Blue bars are medians of the countries in each group. Days are counted from January 25, 2020 to
May 26, 2021. Orange whiskers represent interquartile ranges. Sample contains 32 LAC, 7 SAR, 19
MNA, 23 ECA, 20 EAP, and 43 SSA economies and 33 advanced economies.
D. Bars show averages for 2015-19 except for the Dominican Republic (2015-18) and Panama (2015-17). “Rest of LAC” includes Argentina, Belize, Bolivia, Brazil, Chile, Colombia, the Dominican
Republic, Ecuador, Guatemala, Jamaica, Panama, Peru, Paraguay, and Uruguay.

acceleration in investment, particularly public
investment. The economy is benefiting from easy
credit conditions and supportive external
condition, including a 10-year high in copper
prices.
Growth in Central America is projected to reach
4.8 percent this year as robust growth andadditional fiscal support in the United States
supports remittance inflows and exports,

Risks to the regional growth outlook continue tobe predominantly to the downside, including
slower-than-expected COVID-19 vaccination,
continued surges in new cases, adverse market
reactions to strained ﬁscal conditions, anddisruptions related to social unrest and natural
disasters.
Across the region, the durability of the economic
recovery is highly contingent on control of thepandemic. Although the share of the regional
population that has received at least one
vaccination is higher than the EMDE average, thepace suggests that widescale vaccination will not
be reached until well into 2022 or beyond in mostof the region (ﬁgure 2.3.3.A). In this context,
renewed surges of infections, or widespread
circulation of new variants, could set back theregion’s economic recovery and put additionalstrain on already overburdened health systems.
Further, frustration about the stringency andduration of mobility restrictions related to
COVID-19, combined with entrenched inequalityof opportunity and a worsening perception of
government eﬀectiveness over time, could fuelsocial unrest.

G LO BAL EC O NO MIC P ROS P EC TS | J U NE 2021

Concerns about ﬁscal sustainability, a constantvulnerability for the region, have intensiﬁed. Last
year’s extra spending to cushion households, ﬁrms,
and banks from the economic shocks of thepandemic, together with a sharp drop in tax
revenues, has caused government deﬁcits and debt
levels to increase sharply. Gross government debt
in the median LAC economy rose from 53 percent
of GDP in 2019, to 64 percent in 2020, and isestimated to remain at about that level throughthe forecast period (ﬁgure 2.3.3.B). External debt
has also risen substantially.
Larger ﬁnancing needs and debt burdens makesovereigns more susceptible to spikes in borrowing
costs, currency depreciation, and capital outﬂows
in the face of shifts in investor sentiment. Risks
related to contingent liabilities have also risen.
Deteriorating investor sentiment in reaction topoor ﬁscal conditions could be compounded by,or catalyzed by, market reactions in response toheightened uncertainty about the direction ofpolicy.
Disruptions related to natural disasters are apersistent, and signiﬁcant, source of downside risk
to the region’s economic activity. A recent droughtin portions of South America, hurricanes in

LATIN AME RIC A AN D THE C ARIBBE AN

Central America, and volcanic eruptions in St.
Vincent and the Grenadines underscore the needfor concrete action to improve resilience to natural
disasters and climate-induced shocks (World Bank
2021f).
Failure to pursue policies to oﬀset the damage
from the pandemic, such as the promotion of
investment in new technologies and infrastructurethat boost productivity, would weaken long-term
growth prospects. Schools in LAC have been fully
closed for longer than in other EMDE regions(ﬁgure 2.3.3.C). The learning losses incurred by
students during extended school closures in theregion will likely have long-lasting repercussions
on lifetime earnings and impede already sluggish
growth of labor productivity and potential output(Kilic Celik, Kose, and Ohnsorge 2020; WorldBank 2021g, 2021h).
An upside risk to the forecast in the near term isstronger-than-expected spillovers from a strong
growth rebound in the United States throughtrade and conﬁdence channels. Mexico,
Nicaragua, El Salvador, Costa Rica, andHonduras, in particular, stand to beneﬁt fromstronger export demand from the United States(ﬁgure 2.3.3.D).

77

78

CHAPTER 2.3

G LO BAL EC O NO MIC P ROS P EC TS | J U NE 2021

TABLE 2.3.1 Latin America and the Caribbean forecast summary

Percentage point
differences from January
2021 projections(Real GDP growth at market prices in percent, unless indicated otherwise)
2018

2019

2020e

2021f

2022f

2023f

2021f

2022f

EMDE LAC, GDP1

1.8

0.9

-6.5

5.2

2.9

2.5

1.4

0.1

GDP per capita (U.S. dollars)

0.7

-0.2

-7.4

4.2

2.1

1.7

1.3

0.1

(Average including countries that report expenditure components in national accounts)2
EMDE LAC, GDP2

1.8

0.9

-6.5

5.2

2.9

2.5

1.4

0.1

PPP GDP

1.8

0.9

-6.8

5.2

2.9

2.5

1.3

0.0

Private consumption

2.2

1.1

-7.7

5.3

3.2

2.7

1.2

0.2

Public consumption

1.7

0.1

-1.9

0.7

0.5

0.5

0.1

0.1

Fixed investment

2.4

-0.9

-10.7

8.8

5.3

4.3

3.4

0.4

Exports, GNFS3

4.3

0.8

-8.3

7.3

4.9

3.9

1.1

0.5

Imports, GNFS3

5.3

-0.8

-13.8

9.7

5.4

4.9

2.9

0.4

Net exports, contribution to growth

-0.3

0.4

1.3

-0.5

-0.1

-0.2

-0.4

0.0

South America4

1.5

1.0

-5.8

5.2

2.7

2.5

1.4

-0.1

Central America5

2.7

2.6

-7.5

4.8

4.5

3.6

1.2

1.0

Caribbean6

4.9

3.2

-6.8

4.7

6.1

5.7

0.3

2.2

Brazil

1.8

1.4

-4.1

4.5

2.5

2.3

1.5

0.0

Mexico

2.2

-0.2

-8.3

5.0

3.0

2.0

1.3

0.4

Argentina

-2.6

-2.1

-9.9

6.4

1.7

1.9

1.5

-0.2

Memo items: GDP

Source: World Bank.
Note: e = estimate; f = forecast; PPP = purchasing power parity; EMDE = emerging market and developing economy. World Bank forecasts are frequently updated based on new informationand changing (global) circumstances. Consequently, projections presented here may differ from those contained in other Bank documents, even if basic assessments of countries’ prospects
do not differ at any given moment in time. Due to lack of reliable data of adequate quality, the World Bank is currently not publishing economic output, income, or growth data for República
Bolivariana de Venezuela, and República Bolivariana de Venezuela is excluded from cross-country macroeconomic aggregates.
1. GDP and expenditure components are measured in average 2010-19 prices and market exchange rates.
2. Aggregate includes all countries in notes 4, 5, and 6, plus Mexico, except Antigua and Barbuda, Barbados, Dominica, Grenada, Guyana, Haiti, St. Kitts and Nevis, St. Lucia, St. Vincent
and the Grenadines, and Suriname.
3. Exports and imports of goods and nonfactor services (GNFS).
4. Includes Argentina, Bolivia, Brazil, Chile, Colombia, Ecuador, Paraguay, Peru, and Uruguay.
5. Includes Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua, and Panama.
6. Includes Antigua and Barbuda, The Bahamas, Barbados, Belize, Dominica, the Dominican Republic, Grenada, Guyana, Haiti, Jamaica, St. Kitts and Nevis, St. Lucia, St. Vincent and the
Grenadines, and Suriname.

G LO BAL EC O NO MIC P ROS P EC TS | J U NE 2021

LATIN AME RIC A AN D THE C ARIBBE AN

TABLE 2.3.2 Latin America and the Caribbean country forecasts 1

Percentage point differencesfrom January 2021
projections(Real GDP growth at market prices in percent, unless indicated otherwise)
2018

2019

2020e

2021f

2022f

2023f

2021f

2022f

Argentina

-2.6

-2.1

-9.9

6.4

1.7

1.9

1.5

-0.2

Bahamas, The

3.0

1.2

-16.2

2.0

8.5

4.0

-2.6

3.0

Barbados

-0.6

-0.1

-18.0

3.3

8.5

4.8

-4.1

4.6

Belize

2.9

1.8

-14.1

1.9

6.4

4.2

-5.0

4.2

Bolivia

4.2

2.2

-8.8

4.7

3.5

3.0

0.8

0.0

Brazil

1.8

1.4

-4.1

4.5

2.5

2.3

1.5

0.0

Chile

3.7

0.9

-5.8

6.1

3.0

2.5

1.9

-0.1

Colombia

2.6

3.3

-6.8

5.9

4.1

4.0

1.0

-0.2

Costa Rica

2.1

2.2

-4.1

2.7

3.4

3.1

0.1

-0.3

Dominica

2.3

3.6

-10.0

1.0

3.0

2.5

0.0

0.0

Dominican Republic

7.0

5.1

-6.7

5.5

4.8

4.8

0.7

0.3

Ecuador

1.3

0.1

-7.8

3.4

1.4

1.8

-0.1

0.1

El Salvador

2.4

2.6

-7.9

4.1

3.1

2.4

-0.5

0.0

Grenada

4.1

1.9

-12.6

3.5

5.0

4.9

0.5

0.0

Guatemala

3.3

3.9

-1.5

3.6

4.0

3.8

0.0

0.2

Guyana

4.4

5.4

43.5

20.9

26.0

23.0

13.1

22.4

Haiti2

1.7

-1.7

-3.3

-0.5

1.5

2.0

-1.9

0.0

Honduras

3.8

2.7

-9.0

4.5

3.9

3.8

0.7

0.0

Jamaica

1.9

0.9

-10.0

3.0

3.8

3.2

-1.0

1.8

Mexico

2.2

-0.2

-8.3

5.0

3.0

2.0

1.3

0.4

Nicaragua

-3.4

-3.7

-2.0

0.9

1.2

1.4

1.8

0.0

Panama

3.6

3.0

-17.9

9.9

7.8

4.9

4.8

4.3

Paraguay

3.2

-0.4

-0.6

3.5

4.0

3.8

0.2

0.0

Peru

4.0

2.2

-11.1

10.3

3.9

3.5

2.7

-0.6

St. Lucia

2.6

1.7

-20.4

2.6

11.5

8.1

-5.5

6.3

St. Vincent and the Grenadines

2.2

0.5

-3.8

-6.1

8.3

6.1

-6.1

3.3

Suriname

2.6

0.3

-14.5

-1.9

0.1

1.3

0.0

1.6

Uruguay

0.5

0.4

-5.9

3.4

3.1

2.5

0.0

-0.1

Source: World Bank.
Note: e = estimate; f = forecast. World Bank forecasts are frequently updated based on new information and changing (global) circumstances. Consequently, projections presented here
may differ from those contained in other Bank documents, even if basic assessments of countries’ prospects do not significantly differ at any given moment in time.
1. Data are based on GDP measured in average 2010-19 prices and market exchange rates.
2. GDP is based on fiscal year, which runs from October to September of next year.

79Output in the Middle East and North Africa region is projected to grow by a subdued 2.4 percent in 2021,
only half the pace of the recovery that followed the 2009 global recession. Higher oil prices have bolstered
growth prospects in oil exporters, but the improvement has been limited by new virus outbreaks and mixed
vaccination progress. COVID-19 resurgences have also worsened the outlook for oil importers. By 2022,
regional activity is expected to remain 6 percent below pre-pandemic projections. Risks to the regional outlook
remain predominantly to the downside. Limited vaccine progress suggests that the pandemic may intensify
again, new variants may emerge, and mobility restrictions may be reimposed. The region is also exposed to risks
from conflict and social unrest, high debt in some economies, and unfavorable commodity price developments.
These risks could interact and further undermine living standards, increase deprivation for vulnerable
communities, and heighten food insecurity.

Recent developments
Most economies in the Middle East and North
Africa (MENA) experienced their sharpest
contraction in decades in 2020. In 2021, newconfirmed cases per day again reached all-timehighs in two-thirds of economies (figure 2.4.1.A).
The resurgent virus has forced renewed mobility
restrictions in many economies. The economic
implications of rising infections, however, has so
far been limited. Mobility around work and retailspaces has again contracted relative to prepandemic levels since April, but considerably lessthan last year. Administered COVID-19 vaccine
doses are still a small fraction of the populationand even confirmed purchases (not necessarily
delivered) amount to only about half of theregional population (figure 2.4.1.B).
The economic damage done by the pandemic
remains particularly evident in the transport andtourism sectors (figure 2.4.1.C). Transport activity
in late 2020 was still 7 percent below prepandemic levels. International tourist arrivals have
hardly started to recover and are only partly

Note: This section was prepared by Franz Ulrich Ruch.

compensated by domestic tourism. This is a sharp
deceleration from before the pandemic, whenrevenue from inbound tourists accounted for 5
percent of GDP on average and exceeded 10
percent of GDP in Jordan and Lebanon. The
recovery has yet to generate employment increases,
with the employment sub-index of the purchasing
managers’ indexes in the region still showing
contraction (figure 2.4.1.D).
Despite continued pandemic-related disruptions,rising oil prices and faster-than-expected recoveries
in most regional economies, are supporting
activity in oil exporters. The Islamic Republic of
Iran avoided an expected contraction in fiscal year
2020/21, which ended in March, with both the oiland non-oil sectors rebounding in the second halfof the year, benefiting from higher oil prices andcurrency depreciation, respectively. In Saudi
Arabia, oil production cuts deepened the contraction in the oil sector but was offset by a continued
recovery in the non-oil sector. High frequency
data suggest the recovery has gained momentum.
In Qatar and the United Arab Emirates,
significant progress of vaccination campaigns
helped boost activity in early 2021. Rising oil
prices, and a recovery in demand, are expected toreturn current account balances to surplus andincrease inflation in many oil exporters.

82

CHAPTER 2.4

G LO BAL EC O NO MIC P ROS P EC TS | J U NE 2021

FIGURE 2.4.1 MENA: Recent developments
New COVID-19 cases have reached all-time highs in the Middle East andNorth Africa (MENA), although vaccine rollouts have begun in earnest in
some. Economic recovery is underway, but hard-hit sectors, such astransport and hospitality, are still lagging. Although activity has been
expanding in the region, employment has continued to fall, andunemployment remains elevated.
A. COVID-19 cases

B. COVID-19 vaccinations

Cases

Per hundred population Per hundred population
140
500
120
Total administered
400
100
Purchased (RHS)
300
80
60
200
40
100
20
0
0

Index (100 = most stringent)
Oil importers
Non-GCC oil exporters
100
GCC
Stringency Index (RHS)
80

60,00050,00040,00060

30,00020,00010,0000

UAE
IsraelBahrain
United States
Qatar
KuwaitSaudi Arabia
MoroccoJordanLebanon
Oman
Tunisia
Iran, Islamic Rep.
Egypt, Arab Rep.
Iraq
Algeria40
20May-21

Jan-21

Sep-20Jan-20May-200

C. Growth in sectoral activity

D. Purchasing managers’ indexes

Percent, year-on-year10

Index, >50 expansion
54
Total economy

5

52

0

50
48

-5

44
42
Apr-21

Jan-21

Oct-20Jul-20

Apr-20Jan-202020Q4

2020Q340

2020Q2

2020Q1

2019Q4

2019Q1-20

2019Q3-15

46

Trade and hospitality
Transport
Finance

2019Q2-10

Employment

Sources: Duke Global Health Innovation Center, Duke University; Haver Analytics; Johns Hopkins
University Coronavirus Resource Center; Our World in Data; University of Oxford Coronavirus
Government Policy Tracker; World Bank.
Note: GCC = Gulf Cooperation Council; MENA = Middle East and North Africa; UAE = United ArabEmirates.
A. Seven-day average new confirmed COVID-19 cases. Last observation is May 25, 2021.
“Stringency Index” is a GDP-weighted average where the last available country observation isextended to most recent date.
B. Yellow bars reflect advanced economies. “Purchased” refers to total vaccines purchased as of
May 2021. It excludes vaccines from the COVAX initiative and potential future purchases. Lastobservation for administered doses is May 25, 2021.
C. 2019 GDP-weighted average for the Arab Republic of Egypt, the Islamic Republic of Iran, Iraq,
Morocco, Qatar, and Saudi Arabia. Last observation is 2020Q4.
D. 2019 GDP-weighted average of Arab Republic of Egypt, Lebanon, Qatar, Saudi Arabia, and theUnited Arab Emirates. Last observation is April 2021.

Several oil importers experienced a resurgence of
COVID-19 cases in early 2021, clouding
economic activity in the Arab Republic of Egypt,
Jordan, Lebanon, and Tunisia. In Egypt, highfrequency indicators suggest that the economy
remains sluggish in the first half of 2021 despite aneasing of lockdown restrictions. In Morocco, thecombination of drought, the collapse of tourism,
and tight lockdown restrictions continues to hinder
economic activity. High new cases of COVID-19
in Lebanon and West Bank and Gaza, and recent
conflict in the latter are compounding already challenging economic and humanitarian situations.

Bond market conditions have improved in 2021,
with sovereign spreads narrowing in most countries, although Lebanon is an exception. There has
been renewed pressure on portfolio inflows
recently, however. Regional equity prices are
mixed remaining below pre-pandemic levels in
Bahrain, Egypt, and Morocco.
Governments have taken further policy steps in
2021 to address the effects of the pandemic. In
Saudi Arabia, an instant payment system has beenlaunched, guarantees and forbearance measures
have been extended, and working rules for
expatriates loosened. In Egypt, the minimum wage
for public sector workers was increased by 20
percent (starting July), charges on most financialtransactions were cancelled for an additional six
months from the start of 2021, and further
measures were undertaken to encourage lending.
In the United Arab Emirates, steps have beentaken to encourage foreign ownership in theeconomy, including through the removal of limits
on the banking sector, board composition, andmajority ownership.

Outlook
GDP in the region is expected to grow by 2.4
percent in 2021, 0.3 percentage points more thanprojected in January but still below the averageduring the past decade (figure 2.4.2.A). The
region should benefit from the recent rebound in
oil prices, stronger external demand, and lesseconomically disruptive new outbreaks. Growth isexpected to strengthen further in 2022, to 3.5
percent, but ease to 3.2 percent in 2023. Firming
activity in 2022 will be underpinned byincreasingly robust private consumption andinvestment growth, as mobility restrictions easeand vaccinations progress (figure 2.4.2.B). Yet theoutlook is still highly uncertain and tied to thecourse of the pandemic and vaccine rollouts.
In oil exporters, a stronger-than-expected reboundin GDP in the second half of 2020 has created thefoundation for growth to accelerate to a projected
2.3 percent in 2021. This reflects an upgrade of
0.5 percentage point relative to previous forecasts.
Higher oil prices, as oil production cuts aretapered, will support growth and government

G LO BAL EC O NO MIC P ROS P EC TS | J U NE 2021

revenue recoveries (figure 2.4.2.C). Oil prices are
expected to average $62 a barrel in 2021 and
2022, significantly higher than assumed in
January. Nevertheless, GDP in 2022 in oil
exporters is projected to be 5 percent below its
pre-pandemic trend.
GDP in Saudi Arabia is expected to grow by 2.4
percent this year and 3.3 percent in 2022,
reflecting positive pandemic developments, higher
oil prices, and the start of a new government
investment program, financed through thesovereign wealth fund, equivalent to about 5
percent of GDP per year over the next five years.
In the Islamic Republic of Iran, growth is forecast
to recover to 2.1 percent in 2021 and 2.2 percent
in 2022 with a rebound in industrial production
outweighing continued suppressed demand forservices due to a high number of COVID-19
cases.
Higher oil prices were not enough to improve
prospects in all oil exporters, however. The
recovery in Algeria has been downgraded as betterhydrocarbon output is more than offset by private
sector weakness and the recovery in public
investment is increasingly constrained by fiscal
policy.
Prospects for economies that have recently faced
fragility, conflict, and violence are mixed. In
Libya, the creation of an interim unity
government in March, following years of division,and the lifting of the oil blockade are expected torestore economic activity this year close to 2019
levels after a collapse last year. In Iraq, output isprojected to expand by 1.9 percent in 2021 andstrengthen to 8.4 percent in 2022, after a doubledigit percentage point contraction last year, as oil
production rebounds. Growth over the forecasthorizon, however, will only gradually reverse a
substantial rise in poverty rates that occurred in2020 (World Bank 2021i). In Lebanon, the 20.3
percent contraction of GDP in 2020 is expected
to be followed by another large decline in 2021.
Oil importers are expected to grow by 2.8 percent
in 2021, 0.2 percentage point slower thanprojected in January, as the pandemic undermines
recoveries in several economies. As caseloads arebrought under control and restrictions are

MID D LE E AS T AN D NO RTH AFRIC A

83

FIGURE 2.4.2 MENA: Outlook
The regional economy is expected to grow by 2.4 percent in 2021, driven
by stronger consumption and investment. Higher oil prices should support
a tapering of oil production cuts and boost government revenue in oil exporters. Per capita income will not regain its 2019 level over the forecasthorizon.
A. GDP growth

B. Contributions to GDP growth

C. Oil output and prices

D. GDP per capita

Sources: Bloomberg; BP Statistical Review; Haver Analytics; World Bank.
Note: EMDEs = emerging market and developing economies; MENA = Middle East and North Africa.
B. Includes countries that report expenditure components of GDP in their national accounts andexcludes change in inventories and residuals.
C. “Oil GDP” shows a 2019 GDP-weighted average of 9 MENA oil exporters. Quarterly data. Brent
crude oil price forecasts based on oil futures. Last observation is May 21, 2021.
D. Based on real GDP in USD using 2010-19 prices and market exchange rates.

removed, growth should pick up further, to 3.8
percent and 4.2 percent in 2022 and 2023,
respectively. In Egypt, growth, having been solid
in fiscal year 2019/20, is expected to slow to 2.3
percent in 2020/21, starting July, before
strengthening again in 2021/22. The slower
growth expected this year reflects damage totourism, manufacturing, and oil and gas
extractives from the pandemic and the lingering
impact of a decline in domestic demand, notably
from a collapse in fixed investment. In Morocco,
output is expected to rebound to 4.6 percent in
2021 as drought conditions ease, policy remains
accommodative, and favorable virus and vaccine
trends provide scope for easing domestic mobility
restrictions.
Fiscal policy is envisioned to be less accommodative this year following unprecedented

84

CHAPTER 2.4

G LO BAL EC O NO MIC P ROS P EC TS | J U NE 2021

FIGURE 2.4.3 MENA: Risks
Limited access to vaccines is hindering progress in bringing down COVID19 caseloads. Oil activity remains a large part of oil exporters’ economies,
and regional growth prospects may be more sensitive than expected to an
ongoing decline in global reliance on oil. Conflict and social unrest may
present downside risks for the region.

Percent
550
Advanced economies
500
450
MENA
400
350
300
250
200
150
100
50
0

Percent of total
100
80
60
40

Apr-21
May-21

Jan-21
Feb-21
Mar-2120

Oct-20Nov-20Dec-20Jul-20Aug-20
Sep-20B. Oil share in activity

May-20Jun-20

A. COVID-19 vaccine purchases

C. Energy intensity of global output
TOE per $1,000 GDP
0.3

0
GDP

Energy30
25

0.2

Government
revenue

D. Recurring conflicts in MENA
Number of conflicts

Oil

Merchandise
exports

More than 3 episodes
3 conflict episodes
2 conflict episodes
No recurrence

20
15

0.1

10

Risks

5

2015
2019

2010

2005

2000

1995

1990

1985

1980

1975

1970

1965

0.0

region this year, still 5 percent below their level in
2019, and will remain below this level over theforecast horizon (figure 2.4.2.D). The damage toincomes means that an estimated 192 million
people in the region, 14.2 million more than
expected before the pandemic, are estimated tolive on less than $5.50 per day in 2021 (WorldBank 2021j). This represents about half of theregion’s population. The incidence of poverty ishigher among refugees (Joint Data Center ofForced Displacement, World Bank, and UNHCR
2021). Economies facing fragility and conflict arelikely to see rising cases of food insecurity,
compounded by a large increase in global
agricultural prices. Lebanon (facing rapid foodinflation and damage to food security infrastructure), the Republic of Yemen, the Syrian Arab
Republic, and West Bank and Gaza areparticularly vulnerable. An estimated 28.5 million
people are suffering high or acute food insecurity
in Syria and Yemen (FAO and WFP 2021).1

0
No
recurrence

Recurring
conflict

Sources: BP Statistical Review; Duke Global Health Innovation Center, Duke University; Haver
Analytics; Jarland et al. (2020); UNCTAD; World Bank.
Note: MENA = Middle East and North Africa.
A. “Vaccine purchases” reflect total purchases as a ratio to total population in each region. This data
excludes the COVAX initiative and potential future purchases. Last observation is May 2021.
B. Unweighted averages. “GDP” is based on real GDP data for 8 MENA oil exporters, “Revenue” isbased on 7 oil exporters, “Merchandise exports” are based on SITC commodity code 3 which
includes petroleum, petroleum products and related materials, gas, natural and manufactured for 9 oil
exporters. Orange lines reflect minimum and maximum values. Based on 2019 data.
C. Energy includes coal, natural gas and oil; “TOE” stands for tonnes of oil equivalent; GDP is inconstant 2010-19 U.S. dollars.
D. Based on Jarland et al. (2020) and includes all conflicts in MENA between 1989 and 2018.
Conflicts are considered as recurring when there is at least one calendar year between the last eventin the previous episode, and the first event in the following episode.

support in 2020. The average primary fiscal deficit
is expected to be about 4 percent of GDP in 2021,
about two-thirds its level in 2020. The scope forfurther fiscal support is limited by vulnerabilities
related to rising debt from already high levels in a
number of economies (Bahrain, Egypt, Lebanon,
Morocco, Oman, Tunisia) and buffers used up
following the oil price collapse of 2015. Monetary
policy should remain accommodative with policy
interest rates likely to remain flat through 2021
and at historically low levels in many economies.
Despite the economic recovery in 2021, per capita
incomes will grow by less than 1 percent in the

Risks to the regional outlook are predominantly tothe downside and relate to the possibilities ofresurgent COVID-19 cases, vaccination delays,
weaker oil prices in the context of limited
economic diversiﬁcation, higher agricultural prices
and food insecurity, and conﬂict and social unrest.
The materialization of several of these risks could
have compound eﬀects that severely worsen
economic, institutional, and political outcomes.
Limited vaccine availability and ineﬀective vaccine
rollouts could cause the pandemic to worsen in theregion, with additional virus variants possibly
emerging. Vaccines access remains an important
limiting factor in durably bringing down caseloads
in the region (ﬁgure 2.4.3.A). On the upside,
concerted eﬀorts to accelerate vaccination rollout
globally could ease regional mobility restrictions,improve conﬁdence, and release pent-up demand.
Limited economic diversiﬁcation in oil-exporting
economies continues to present risks to the region

1 Food insecurity is based on the Integrated Food Security Phase
Classification and refers to food deprivation that threatens lives or
livelihoods.

G LO BAL EC O NO MIC P ROS P EC TS | J U NE 2021

as oil demand is expected to remain below
pre-pandemic levels through 2023 (IEA 2021).
Oil revenue accounted for about one-third of
output, two-thirds of merchandise exports, andthree-quarters of government revenue in these
economies in 2019 (ﬁgure 2.4.3.B). In the shortrun, oil prices may remain volatile, with the main
risk posed by lower global demand if pandemic
containment falters. The unravelling of oil production cut agreements may also lead to lower oil
prices. In the long run, post-pandemic initiatives
for a greener development path make diversiﬁcation even more urgent. The oil intensity of
global output declined by about one-third in thetwo decades to 2019, and this trend will likely
continue (ﬁgure 2.4.3.C).
The possibility of social unrest and conﬂict is adownside risk to the outlook and could extend
existing economic disruptions and food security
challenges already present in some economies.
Close to half of conﬂicts globally, and one-third in
MENA, have recurred in the past, often over the

MID D LE E AS T AN D NO RTH AFRIC A

same or similar issues (ﬁgure 2.4.3.D; Jarland etal. 2020). Recent conﬂict in the West Bank andGaza present signiﬁcant downside risk to its
growth outlook. Countries aﬀected by conﬂict
have some of the worst gender gaps in education,
labor force participation and political participation, making gender-speciﬁc provision ofopportunities vital in supporting medium andlong-term development in these economies(Bakken and Buhaug 2020; World Bank andGerman Development Cooperation 2020).
Separately, sporadic attempted attacks on Saudi
Arabian oil facilities underline security threats in
the region and risks of a surge in tensions.
Additional increases in food price inﬂation, whichhave accelerated rapidly in Lebanon and Yemen,
may further erode real incomes and reduce
consumption. Agricultural prices have alreadyincreased by 30 percent over the past year and may
further increase food insecurity (World Bank
2021k).

85

86

CHAPTER 2.4

G LO BAL EC O NO MIC P ROS P EC TS | J U NE 2021

TABLE 2.4.1 Middle East and North Africa forecast summary

Percentage point
differences from January
2021 projections(Real GDP growth at market prices in percent, unless indicated otherwise)
2018
2019
2020e
2021f
2022f
2023f
0.6
0.6
EMDE MENA, GDP 1
-3.9
2.4
3.5
3.2
-5.4
0.8
2.0
1.8
-1.1
-1.1
GDP per capita (U.S. dollars)(Average including countries that report expenditure components in national accounts) 2
EMDE MENA, GDP 2
0.8
0.3
-3.3
2.3
3.1
3.0
1.0
0.4
PPP GDP
-2.6
2.5
3.3
3.3
-3.4
2.4
2.6
2.7
0.7
3.5
Private consumption
Public consumption
0.6
1.9
1.3
1.4
2.9
-1.6
Fixed investment
-0.9
-1.3
-9.6
3.5
5.4
5.3
1.4
-4.4
Exports, GNFS 3
-10.3
4.6
5.3
5.2
-13.8
4.2
5.0
5.1
-4.5
-2.5
Imports, GNFS 3
Net exports, contribution to growth
0.5
0.5
0.6
0.6
2.5
-1.1
Memo items: GDP
Oil exporters 4
-0.1
0.1
-4.2
2.3
3.5
3.0
1.9
1.5
GCC countries 5
-4.8
2.2
3.4
3.2
2.4
0.3
Saudi Arabia
-4.1
2.4
3.3
3.2
-6.0
-6.8
1.7
2.1
2.2
2.3
Iran, Islamic Rep.
3.8
2.7
Oil importers 6
-2.4
2.8
3.8
4.2
5.3
5.6
3.6
2.3
4.5
5.5
Egypt, Arab Rep. 7

2021f
0.3
0.3

2022f
0.3
0.3

0.3
0.2
0.9
0.9
-2.1
1.4
1.6
0.0

0.3
0.2
0.1
-0.4
1.9
0.9
1.1
0.1

0.5
0.5
0.4
0.6
-0.2
-0.4

0.6
0.7
1.1
0.5
-0.5
-1.3

Source: World Bank.
Note: e = estimate; f = forecast; PPP = purchasing power parity; EMDE = emerging market and developing economy. World Bank forecasts are frequently updated based on new informationand changing (global) circumstances. Consequently, projections presented here may differ from those contained in other Bank documents, even if basic assessments of countries’ prospects
do not differ at any given moment in time.
1. GDP and expenditure components are measured in average 2010-19 prices and market exchange rates. Excludes the Syrian Arab Republic and the Republic of Yemen due to data
limitations, and Libya due to the high degree of uncertainty.
2. Aggregate includes all economies in notes 4 and 6 except Djibouti, Iraq, Qatar, and West Bank and Gaza, for which data limitations prevent the forecasting of GDP components.
3. Exports and imports of goods and nonfactor services (GNFS).
4. Oil exporters include Algeria, Bahrain, the Islamic Republic of Iran, Iraq, Kuwait, Oman, Qatar, Saudi Arabia, and the United Arab Emirates.
5. The Gulf Cooperation Council (GCC) includes Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the United Arab Emirates.
6. Fiscal-year based numbers. The fiscal year runs from July 1 to June 30 in the Arab Republic of Egypt, with 2020 reflecting FY2019/20. For the Islamic Republic of Iran, it runs from March
21 through March 20, with 2020 reflecting FY2020/21.
7. Oil importers include Djibouti, the Arab Republic of Egypt, Jordan, Lebanon, Morocco, Tunisia, and West Bank and Gaza.

TABLE 2.4.2 Middle East and North Africa economy forecasts1

Percentage point differencesfrom January 2021
projections(Real GDP growth at market prices in percent, unless indicated otherwise)
2018

2019

2020e

2021f

2022f

2023f

2021f

2022f

Algeria

1.2

0.8

-5.5

3.6

2.3

1.6

-0.2

0.2

Bahrain

2.0

1.9

-5.4

3.3

3.2

3.2

1.1

0.7

Djibouti

8.4

7.8

0.5

5.5

6.0

6.2

-1.6

-1.2

Egypt, Arab Rep.2

5.3

5.6

3.6

2.3

4.5

5.5

-0.4

-1.3

Iran, Islamic Rep.2

-6.0

-6.8

1.7

2.1

2.2

2.3

0.6

0.5

Iraq

-1.2

4.4

-10.4

1.9

8.4

4.2

-0.1

1.1

Jordan

1.9

2.0

-1.6

1.4

2.2

2.3

-0.4

0.2

Kuwait

1.2

0.4

-5.4

2.4

3.6

2.8

1.9

0.5

Lebanon3

-1.9

-6.7

-20.3

-9.5

..

..

3.7

..

Libya3

15.1

2.5

-31.3

66.7

..

..

62.7

..

Morocco

3.1

2.5

-7.1

4.6

3.4

3.7

0.6

-0.3

Oman

0.9

-0.8

-6.3

2.5

6.5

4.2

2.0

-1.4

Qatar

1.2

0.8

-3.7

3.0

4.1

4.5

0.0

1.1

Saudi Arabia

2.4

0.3

-4.1

2.4

3.3

3.2

0.4

1.1

Tunisia

2.9

0.9

-8.8

4.0

2.6

2.2

-1.8

0.6

United Arab Emirates

1.7

4.8

-6.1

1.2

2.5

2.5

0.2

0.1

West Bank and Gaza

1.2

1.4

-11.5

3.5

3.6

3.7

1.2

1.2

Source: World Bank.
Note: e = estimate; f = forecast. World Bank forecasts are frequently updated based on new information and changing (global) circumstances. Consequently, projections presented here may
differ from those contained in other Bank documents, even if basic assessments of economies’ prospects do not significantly differ at any given moment in time.
1. Data are based on GDP measured in average 2010-19 prices and market exchange rates. Excludes the Syrian Arab Republic and the Republic of Yemen due to data limitations.
2. Fiscal-year based numbers. The fiscal year runs from July 1 to June 30 in the Arab Republic of Egypt, with 2020 reflecting FY2019/20. For the Islamic Republic of Iran, it runs from March
21 through March 20, with 2020 reflecting FY2020/21.
3. Forecasts for Lebanon and Libya beyond 2021 are excluded due to a high degree of uncertainty.

Output in South Asia is expected to expand 6.8 percent in 2021, a pace on par with average growth for theprevious decade (2010-19). Stronger-than-expected momentum at the beginning of the year has been disrupted
by a large surge of COVID-19 cases. Despite continued recovery, output in 2022 is forecast to be 9 percent
below pre-pandemic projections. Poverty rates have risen, and by the end of this year more than half the new
global poor are expected to live in the region. The outlook could be weaker if vaccination does not proceed as
quickly as assumed. Moreover, financial sector balance sheets are at risk of deteriorating, as policy measures put
in place at the peak of the pandemic are scaled back, which could constrain the provision of credit andinvestment needed to support the recovery.

Recent developments
COVID-19 cases have surged in South Asia (SAR)with peaks in daily new confirmed cases this year
higher than anything seen before in three-quartersof economies (figure 2.5.1.A). The situation isparticularly serious in India, where the number ofdaily deaths and cases is now higher than in any
other country during the pandemic. For the region
as a whole, peaks in daily new confirmed cases anddeaths in 2021 are multiple times higher than lastyear. Although nearly all countries in the region
have begun vaccinations, progress has been slow,
and the region’s largest economies—Bangladesh,
India, and Pakistan—have vaccinated only a small
fraction of their populations (figure 2.5.1.B).
Bhutan and Maldives, however, have managed tovaccinate more than half of their populations.
The recovery in SAR has been faster than
expected. Activity in most sectors has overtaken
pre-pandemic levels, despite rising COVID-19
cases—including in construction, one of theinitially hardest hit sectors (figure 2.5.1.C).
Output in retail and wholesale trade, and hotels
and restaurants, however, was still lower than the
pre-pandemic level. Tourist arrivals to SAR have

Note: This section was prepared by Franz Ulrich Ruch.

risen from their trough but remain 70 percent
below pre-pandemic levels. Bhutan and Maldives,
two economies highly exposed to tourism, experienced larger-than-expected output declines in
2020. External balances improved in 2020, withthe region’s current account shifting to surplus forthe first time in over a decade as imports plunged
more than exports (figure 2.5.1.D). The current
account balance, however, has already shifted backto deficit as stronger domestic demand boosted
imports.
In India, an enormous second COVID-19 wave isundermining the sharper-than-expected reboundin activity seen during the second half of
FY2020/21, especially in services. With surging
COVID-19 cases, foot traffic around work andretail spaces has again slowed to more than onethird below pre-pandemic levels since March, inpart due to greater restrictions on mobility.
Recoveries in Bangladesh and Pakistan face newheadwinds from a recent rise in COVID-19 cases
accompanied by rising restrictions to stamp out
the new surge. Mobility around places of work andretail has again dropped below pre-pandemic
levels.
Benign global financial conditions have helped
boost asset prices and narrow sovereign spreads;
however, sentiment remains fragile. Equity prices
in May were about 20 percent above pre-pandemic

88

CHAPTER 2.5

G LO BAL EC O NO MIC P ROS P EC TS | J U NE 2021

FIGURE 2.5.1 SAR: Recent developments
New COVID-19 cases have risen sharply, most notably in India, andrestrictions on mobility have been tightened in some countries.
Vaccinations have begun in earnest with limited progress in the region’slarge economies. Economic recovery is underway, but activity in some
sectors is still below pre-pandemic levels. External balances have shiftedback to deficit after import compression brought about the first surplus in a
decade.
B. Total administered vaccinations

Index (100 = most stringent)
Stringency index (RHS) 100

100

200

80

80

150

60

20
Afghanistan

Pakistan

Bangladesh

Nepal

0
Sri Lanka

Jan-21

C. Sectoral activity

60
40

Maldives

0May-210
Oct-2020
Jul-204050Apr-20100

Per hundred of population

India

Cases per million
New cases

250

BhutanA. COVID-19 cases

D. Current account balanceIndex, 100 = 2019Q4
120
110
100
90
80
Construction
70
Trade and hospitality
60
Financial
50

2020Q42021Q1

2019Q3
2019Q4
2020Q1
2020Q2
2020Q3

2018Q3
2018Q4
2019Q1
2019Q2

2018Q1
2018Q240

Sources: Haver Analytics; John Hopkins University Coronavirus Resource Center; Our World in Data;
University of Oxford Coronavirus Government Policy Tracker; World Bank.
Note: EMDEs = emerging market and developing economies; SAR = South Asia.
A.B. Last observation is May 25, 2021. “Stringency index” shows a real 2019 GDP-weighted averagefor 7 economies and last available country observation extended to the latest date.
C. Lines show real 2019 GDP-weighted averages for India, Maldives, and Sri Lanka. “Trade andhospitality” includes wholesale and retail trade, and hotels and restaurants.
D. Based on data for 8 economies weighted using 2019 GDP at 2010-19 prices and market exchange
rates.

levels in most of the region’s large economies, andsovereign spreads were effectively back to prepandemic levels except in Sri Lanka. Despite low
global interest rates and domestic forbearance
measures, credit growth has slowed significantly,
partly reflecting impaired bank, corporate, andhousehold balance sheets. Sri Lanka, facing
resurging COVID-19 cases and mounting government debt, experienced significant exchange rate
depreciation since the onset of the pandemic—
despite the halving of foreign exchange reservesand curbs on non-essential imports—andsovereign spreads remain about 14 percent above
the risk-free rate.

Following an aggressive policy response in 2020
that included cuts in interest rates, increases ingovernment expenditure, the extension of loans
and guarantees, and steps to ensure financial
stability, fiscal and monetary policies remain
accommodative. A number of new measures havebeen implemented this year as economies havecalibrated policy responses to support the stilluneven recovery. In India, the FY2021/22 budget
marked a significant policy shift. The government
announced health-related spending would morethan double and set out a revised medium-term
fiscal path intended to address the economic
legacy of the pandemic. Following deteriorating
pandemic-related developments, the Reserve Bankof India announced further measures to support
liquidity provision to micro, small, and medium
firms and loosened regulatory requirements on theprovisioning for nonperforming loans. Debt relief
under the Debt Service Suspension Initiative has
been extended to December 2021 and will provide
additional fiscal space for Afghanistan, Maldives,
Nepal, and Pakistan (G20 2021).

Outlook
Growth in South Asia is expected to rebound to
6.8 percent in 2021, 3.6 percentage points higher
than previously projected, partly reflecting
stronger-than-expected momentum from the endof last year (figure 2.5.2.A). India accounts fornine-tenths of the upgrade to growth in 2021, as
strong services activity more than offsets the
economic effects of the worsening pandemic. The
region’s outlook for 2021 is underpinned by arebound in private consumption, which is
expected to account for about half of overall
growth (figure 2.5.2.B). Near-term growthprospects have not improved in some countries,
however. Projections for Afghanistan (sufferingfrom drought, elevated political uncertainty, andsecurity challenges) and Bhutan (with growth heldback by weak tourism and the postponement of
infrastructure spending) for 2021 have been
downgraded by more than 1.0 percentage point.
The recovery has also done little to narrow gaps
with pre-pandemic trends. In 2022, regional GDP
is expected to be 9 percent lower than projectedprior to the pandemic. The shortfalls are expected
to be largest in tourism-dependent Bhutan andG LO BAL EC O NO MIC P ROS P EC TS | J U NE 2021

Maldives, at over 12 percent, and smallest in
Pakistan at 5 percent (figure 2.5.2.C).
For India, GDP in fiscal year 2021/22, starting
April 2021, is expected to expand 8.3 percent.
Activity will benefit from policy support,
including higher spending on infrastructure, ruraldevelopment, and health, and a stronger-thanexpected recovery in services and manufacturing.
Although the forecast has been revised up by 2.9
percentage points, this masks significant expectedeconomic damage from an enormous second
COVID-19 wave and localized mobility
restrictions since March 2021. Activity is expected
to follow the same, yet less pronounced, collapse
and recovery seen during the first wave. The
pandemic will undermine consumption andinvestment as confidence remains depressed andbalance sheets damaged. Growth in FY2022/23 is
expected to slow to 7.5 percent reflecting lingering
impacts of COVID-19 on household, corporate
and bank balance sheets; possibly low levels of
consumer confidence; and heightened uncertainty
on job and income prospects.

89

SOUTH ASIA

FIGURE 2.5.2 SAR: Outlook
Growth in SAR is expected to rebound to 6.8 percent in 2021 and 2022,
compared to average growth of 6.7 percent in the previous decade.
Growth would have been even stronger if not for the economic impact ofsurging cases. The rebound will be supported by firming consumption andinvestment, with net exports again turning negative as imports
compression unwinds. Despite the rebound, output in 2022 will still be well
below pre-pandemic projections. Fiscal and monetary policy is expected
to remain accommodative in 2021. Government consumption is projected
to contribute over 2 percentage points to 2021 regional growth, reflecting
in part additional policy support in India.

A. GDP growth

B. Contributions to GDP growth

C. Output losses compared to
pre-pandemic trend, 2022

D. Primary fiscal balance

Percent deviation
0

Percent of GDP
2

-5

-2

-10

-6

Source: World Bank.
Note: EMDEs = emerging market and developing economies; SAR = South Asia.
B. Includes countries that report expenditure components of GDP in their national accounts andexcludes change in inventories and residuals.
C. Percent deviation in 2022 output between the January 2020 (pre-pandemic forecast) and June
2021 Global Economic Prospects forecasts.
D. Unweighted average for 9 SAR economies. Orange lines reflect the minimum and maximum
values.

improving remittance inflows and a rebound in
confidence, but the economy is expected to growby only 1.3 percent in fiscal year 2020/21,
reflecting
contracting
investment,
fiscalconsolidation, and depressed activity amid
recurring COVID-19 flare-ups.
Fiscal and monetary policies are expected toremain accommodative in the forecast period. Real
policy interest rates—an indicator of the policy
support provided by central banks—are expected
to remain negative in 2021. South Asian countries
are expected to run an average primary fiscal

2023

2022

2021

2020

2019

2018

2017

-18
2016

Pakistan

Afghanistan

Bangladesh

SAR

Sri Lanka

India

-14

Nepal

-10

-25
Bhutan

-20

2015

-15

Maldives

In the region excluding India, the recovery is
expected to be weaker than its historical growth
average, with GDP growth at 3.1 percent in
FY2021/22 and 4.0 percent in FY2022/23. In thedecade prior to the pandemic, growth in thesubregion exceeded 5 percent; however, COVID19 outbreaks and mobility restrictions, weak
confidence, and potential output losses make thisgrowth performance seem unattainable in the nearterm. In Bangladesh, the recovery is expected to be
gradual, with growth of 3.6 percent in fiscal year
2020/21, starting July, and 5.1 percent in
FY2021/22 as private consumption, the main
engine of growth, is supported by normalizing
activity, moderate inflation, and rising ready-madegarment exports. In Sri Lanka, the resurgence of
COVID-19 cases, severe fiscal pressures, anddepressed tourism are holding back the recovery.
In Maldives, reviving tourism activity, withinternational arrivals now 30 percent below prepandemic levels (compared with virtually no
arrivals at the trough), and a strong vaccination
drive, are expected to contribute to a boost in
GDP growth to 17.1 percent in 2021. The
forecast for Pakistan has been revised up on

90

CHAPTER 2.5

G LO BAL EC O NO MIC P ROS P EC TS | J U NE 2021

FIGURE 2.5.3 SAR: Risks
Amid a worsening pandemic, uncertainty about near-term growth remains
elevated. Financing conditions remain benign but can reverse quickly onchanges in risk perceptions amid elevated government debt levels.
Deteriorating domestic bank balance sheets, already weakened by highnonperforming loans, risk undermining output growth. Rising food inflation
remains a significant risk to regional incomes.

Policy uncertainty (RHS)

20
15

104

100

102

80

100

60
10

40

5

20

0

Index
106

120

2020

96
94

2021

C. Gross government debt

India

98

0
Historical 2008-09
average

GlobalMay-16May-17May-18May-19
May-20May-21

Index

Output uncertainty

25

May-08Percent

B. Global financing conditions

May-09
May-10May-11
May-12
May-13May-14May-15

A. Uncertainty

D. Financial sector developments
Percent, year-on-year
Percent of total loans
Private sector credit growth11
Nonperforming loans

Percent of GDP
140

18
16

120

10

14
12
10
8
6
4

F. Food inflation

Percent of total loans
14

Percent, year-on-year
40

12

30

10

20

8

10

6

0

4

-10

2

-20

0
South Asia

EMDEs

Mar-21

Sep-20Mar-20Agriculture prices
Producer prices
Consumer prices

Jan-15Jun-15
Nov-15
Apr-16
Sep-16
Feb-17
Jul-17
Dec-17May-18Oct-18Mar-19Aug-19Jan-20Jun-20Nov-20
Apr-21

E. Nonperforming loans

Mar-19EMDEs

Sep-19South Asia

7
Mar-180

Sep-1820

8Sep-1740

9Mar-17

60

Mar-1680

Sep-16100

Sources: Baker, Bloom and Davis (2016); Bloomberg; Choudhary, Pasha, and Waheed (2020);
Goldman Sachs; Haver Analytics; International Monetary Fund; World Bank.
Note: EMDEs = emerging market and developing economies; SAR = South Asia.
A. “Output volatility” from a Bayesian VAR model with stochastic volatility for India based on Ha et al.
(2019). “Policy uncertainty” is a GDP-weighted average of Pakistan and India with the index
normalized such that the mean prior to 2011 is equal to 100. “Historical average” is 2002Q2-2019Q4
for output volatility and August 2010 to December 2019 for policy uncertainty.
B. Based on Goldman Sachs Financial Conditions Indexes for the United States, United Kingdom,Japan, Euro Area, India, Indonesia, Brazil, Mexico, the Russian Federation, and Turkey. Lines show2019 GDP-weighted averages. Last observation is May 2021. Higher values reflect tighter financial
conditions.
C. Unweighted average. Based on 2021 forecasts for 8 South Asia economies and 134 EMDEs.
Orange lines reflect interquartile range.
D. Lines show real 2019 GDP-weighted averages. Sample includes Bangladesh, India, Pakistan,and Sri Lanka.
E. Unweighted average. Based on the latest available quarterly data for 2020 for 6 economies inSouth Asia and 67 EMDEs. Orange lines reflect minimum and maximum values.
F. Consumer and producer food prices are real 2019 GDP-weighted averages for 6 South Asian
economies, depending on data availability. Agricultural food prices are adjusted using exchange rates
weighted by 2019 real GDP. Last observation is Apr 2021.

deficit of about 4 percent of GDP in 2021 (figure
2.5.2.D). Two-thirds of the region’s economies
are expected to have a larger primary deficit in
2021 than last year. High levels of public debt in
the region—above 80 percent of GDP, on
average—limit the ability of some economies toincrease spending without the risk of negative
market reactions. In India, fiscal policy shifted in
the FY2021/22 budget toward higher expendituretargeted at health care and infrastructure to boost
the post-pandemic recovery. The renewed outbreak, however, may require further targeted
policy support to address the health and economic
costs.
One of the most challenging legacies of thepandemic in South Asia will be its impact onpoverty. The region is expected to see tens of
millions more extreme poor—living below $1.90
per day—by the end of this year and to have morethan half of the new global poor created by
COVID-19 (Mahler et al. 2021; World Bank
2021l). Further deprivation could be caused byhigher food prices, with global agriculturalcommodity prices already increasing by 30 percent
over the past year (Sahibzada et al. 2021, WorldBank 2021k, World Bank 2021l). Prospects forlonger-term poverty reduction have also been
adversely affected by the pandemic’s impact on
potential growth. With fixed investment in 2022
expected to be 10 percent below pre-pandemic
trends, physical capital growth will likely be slower
in the decade ahead than in the past decade. Withschools closed in SAR for about one-third of thetime so far during the pandemic—affecting about
390 million students—and an estimated 12
percent of labor hours lost, human capital will also
be eroded (ILO 2021; World Bank 2021l).

Risks
With the recovery in its infancy and the pandemic
still spreading rapidly, the outlook remains highly
uncertain. Output uncertainty in the region in
2021 is not as high as last year, but it is still almost
double its historical average (figure 2.5.3.A).
Downside risks still dominate the outlook.
Downside risks emanate from high government
debt, upward pressure on food prices, financial

G LO BAL EC O NO MIC P ROS P EC TS | J U NE 2021

sector challenges, and—in particular—the uncertain path of COVID-19 cases and vaccinations.
Export bans on vaccines, limited raw materials
required in their production, inadequate financial
resources, vaccine hoarding, and ineffective
vaccination campaigns create space for the
pandemic to worsen in the region and for variants
to emerge and undermine the recovery. Renewed
COVID-19 outbreaks may also disrupt crossborder supply chains and undermine the moderation in policy uncertainty. Most SAR economies
are also lagging on vaccine procurement.
Global and domestic financial conditions remain
accommodative, with abundant liquidity and low
interest rates (figure 2.5.3.B). In India, domestic
financial conditions are easier than they have been
in decades. These conditions may change, however, if rapid recoveries in advanced economies
lead to tightening monetary policy in these
economies before recoveries are entrenched in
EMDEs, including those in SAR. An unexpected
rise in global inflation from unprecedented
advanced economy policy support may also reverse
easy financing conditions (chapter 4). Domestically, high debt levels may create the conditions
for borrowing costs to surge if expectations change
abruptly (figure 2.5.3.C).
Domestic financial sector stress remains a significant downside risk in the region. Nonperforming
loans (NPLs) as a share of total loans were already

SOUTH ASIA

elevated prior to the pandemic (Bangladesh,
Bhutan, India), contributing to a precipitous
slowdown in credit growth (figure 2.5.3.D-E).
Although previous efforts to clean up bankbalance sheets yielded some gains in bringing
down NPLs, temporary forbearance measuresextended in 2020 may have concealed a more
severe deterioration in balance sheets experienced
during the pandemic. Going forward, asset quality
and bank profitability may worsen as temporary
forbearance measures are removed or renewed
outbreaks damage balance sheets, undermining
credit and investment growth in these economies.
The intersection of higher food prices andresurgent COVID-19 outbreaks poses significant
risks to vulnerable communities and could further
undermine food security and economic growth.
Although the region has seen food price inflation
for consumers decline from over 10 percent in
September 2020 to about 6 percent in March
2021, inflation for producers remains elevated andglobal agriculture prices rose rapidly (figure
2.5.3.F). Rising agricultural prices, which are
expected to increase by double-digit rates in 2021,
may lead to faster than assumed food priceinflation for consumers, eroding real incomes andreducing consumption. SAR is particularly
vulnerable to the impact of higher food prices,with food accounting for 44 percent ofexpenditure in the consumer basket, compared to
32 percent in EMDEs on average.

91

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CHAPTER 2.5

G LO BAL EC O NO MIC P ROS P EC TS | J U NE 2021

TABLE 2.5.1 South Asia forecast summary

Percentage point
differences from January
2021 projections(Real GDP growth at market prices in percent, unless indicated otherwise)

EMDE South Asia, GDP 1, 2
GDP per capita (U.S. dollars)

2018

2019

2020e

2021f

2022f

2023f

2021f

2022f

6.4

4.4

-5.4

6.8

6.8

5.2

3.6

3.0

5.2

3.2

-6.5

5.6

5.7

4.1

3.5

3.0

(Average including countries that report expenditure components in national accounts)3
EMDE South Asia, GDP 3

6.5

4.4

-5.4

6.8

6.8

5.2

3.6

3.0

6.5

4.4

-5.5

6.9

6.9

5.2

3.7

3.1

Private consumption

7.1

5.0

-7.0

5.7

7.1

5.3

3.1

2.8

Public consumption

8.3

10.2

-0.2

19.5

8.5

7.6

13.3

5.3

Fixed investment

10.1

0.5

-10.9

11.7

8.9

5.5

6.9

3.4

Exports, GNFS 4

10.4

1.5

-7.9

12.1

6.8

9.1

8.0

-0.5

Imports, GNFS 4

13.1

-4.9

-12.6

13.8

7.5

10.2

8.6

-1.7

Net exports, contribution to growth

-1.5

1.7

1.7

-1.0

-0.6

-0.8

-0.5

0.2

2017/18

2018/192019/20e

2020/21f

2021/22f

2022/23f

2020/21f

2021/22f

PPP GDP

Memo items: GDP 2South Asia excluding India

6.1

5.3

2.6

0.6

3.1

4.0

1.2

1.0

India

6.8

6.5

4.0

-7.3

8.3

7.5

2.3

2.9

Pakistan (factor cost)

5.5

2.1

-0.5

1.3

2.0

3.4

0.8

0.0

Bangladesh

7.9

8.2

2.4

3.6

5.1

6.2

2.0

1.7

Source: World Bank.
Note: e = estimate; f = forecast; PPP = purchasing power parity; EMDE = emerging market and developing economy. World Bank forecasts are frequently updated based on new informationand changing (global) circumstances. Consequently, projections presented here may differ from those contained in other Bank documents, even if basic assessments of countries’ prospects
do not differ at any given moment in time.
1. GDP and expenditure components are measured in average 2010-19 prices and market exchange rates.
2. National income and product account data refer to fiscal years (FY) while aggregates are presented in calendar year (CY) terms. (For example, aggregate under 2020/21 refers to CY2020). The fiscal year runs from July 1 through June 30 in Bangladesh, Bhutan, and Pakistan; from July 16 through July 15 in Nepal; and April 1 through March 31 in India.
3. Subregion aggregate excludes Afghanistan, Bhutan, and Maldives, for which data limitations prevent the forecasting of GDP components.
4. Exports and imports of goods and nonfactor services (GNFS).

TABLE 2.5.2 South Asia country forecasts

Percentage point
differences from January
2021 projections(Real GDP growth at market prices in percent, unless indicated otherwise)
2018

2019

2020e

2021f

2022f

2023f

2021f

2022f

Calendar year basis 1
Afghanistan

1.2

3.9

-1.9

1.0

2.6

3.0

-1.5

-0.7

Maldives

8.1

7.0

-28.0

17.1

11.5

8.3

7.6

0.0

Sri Lanka

3.3

2.3

-3.6

3.4

2.0

2.1

0.1

0.0

Fiscal year basis 1

2017/18

2018/192019/20e

2020/21f

2021/22f

2022/23f

2020/21f

2021/22f

Bangladesh

7.9

8.2

2.4

3.6

5.1

6.2

2.0

1.7

Bhutan

3.8

4.3

-0.8

-1.8

5.0

5.6

-1.1

2.7

India

6.8

6.5

4.0

-7.3

8.3

7.5

2.3

2.9

Nepal

7.6

6.7

-2.1

2.7

3.9

5.1

2.1

1.4

Pakistan (factor cost)

5.5

2.1

-0.5

1.3

2.0

3.4

0.8

0.0

Source: World Bank.
Note: e = estimate; f = forecast. World Bank forecasts are frequently updated based on new information and changing (global) circumstances. Consequently, projections presented here
may differ from those contained in other Bank documents, even if basic assessments of countries’ prospects do not significantly differ at any given moment in time.
1. Historical data is reported on a market price basis. National income and product account data refer to fiscal years (FY) with the exception of Afghanistan, Maldives, and Sri Lanka,
which report in calendar year. The fiscal year runs from July 1 through June 30 in Bangladesh, Bhutan, and Pakistan; from July 16 through July 15 in Nepal; and April 1 through March
31 in India.

Output in Sub-Saharan Africa (SSA) is expected to expand a modest 2.8 percent in 2021, and 3.3 percent next
year. Positive spillovers from strengthening global activity, better international control of COVID-19, andstrong domestic activity in agricultural commodity exporters are expected to gradually help lift growth.
Nonetheless, the recovery is envisioned to remain fragile, given the legacies of the pandemic and the slow pace ofvaccinations in the region. In a region where tens of millions more people are estimated to have slipped into
extreme poverty because of COVID-19, per capita income growth is set to remain feeble, averaging 0.4 percent
a year in 2021-22, reversing only a small part of last year’s loss. Risks to the outlook are tilted to the downside,and include lingering procurement and logistical impediments to vaccinations, further increases in food pricesthat could worsen food insecurity, rising internal tensions and conflicts, and deeper-than-expected long-term
damage from the pandemic.

Recent developments
Output in Sub-Saharan Africa (SSA) collapsed byan estimated 2.4 percent in 2020 as a result of the
COVID-19 pandemic. This was the region’s firsteconomic contraction in a generation and the
deepest recession since the 1960s. The recession
was, however, milder than previously projected, as
the virus spread more slowly than anticipated andagricultural activity was unexpectedly strong insome countries (Benin, Ethiopia, Kenya, Nigeria;
World Bank 2021m). Growth in the region has
gradually resumed this year, reflecting positive
spillovers from strengthening global economic
activity, including higher oil and metal prices, andsome progress at containing COVID-19
outbreaks, especially in Western and Central
Africa (figure 2.6.1.A). PMI readings for
manufacturing and services suggest that activity inthese sectors continued to expand in 2021, albeit
at still modest rates (figure 2.6.1.B). The
pandemic has contributed to a widening of budget
deficits and a sharp increase in government debt.
The debt-to-GDP ratio in the region jumped on
average 8 percentage points to 70 percent of GDP
last year, raising the risk of debt distress in some

Note: This section was prepared by Cedric Okou.

countries (IMF 2020). The adverse effects of thepandemic, fiscal pressures, and the very slow paceof vaccinations have dampened the resumption of
growth, in particular in the hospitality andtourism sectors.
Activity in the three largest economies in theregion—Angola, Nigeria, and South Africa—haspartially recovered after falling by 4.2 percent in2020. Many industrial and agriculturalcommodity exporters suffered deep contractions
last year from depressed external demand andlocalized COVID-related disruptions (Angola,
Cabo Verde, Mali, Republic of Congo; FAO
2020; World Bank 2021n). In tourism-reliant
countries, international arrivals have been at a near-halt, and are likely to remain anemic until
widescale vaccinations allow for a safe reopeningof borders to international travel (Kenya,
Mauritius, Seychelles; figure 2.6.1.C). Althoughconditions have improved in the region, COVID19 and related control measures have continued todisrupt schooling, damage health, inhibit
investment, and weigh on growth.
In countries with policy space, accommodative
monetary and fiscal policies, combined withcurrency depreciations and rising energy and foodprices, have fueled inflationary pressures in some

94

CHAPTER 2.6

G LO BAL EC O NO MIC P ROS P EC TS | J U NE 2021

FIGURE 2.6.1. SSA: Recent developments
New COVID-19 infections in Sub-Saharan Africa (SSA) have declined afterrising sharply in late 2020 and early 2021. Although PMI readings haveremained in expansionary territory this year, the resumption in activity has
been tepid. International tourist arrivals have remained close to zero overthe past year. As vaccinations proceed, some countries will gradually lift
travel restrictions. Inflation has picked up in some countries, reflecting
currency depreciations and rising food prices.
A. Daily new COVID-19 infections in
SSA

B. Median purchasing managers
indexes for SSA countries

Per 100,000
Per 100,000
Eastern and Southern Africa
515
Sub-Saharan Africa
West and Central Africa
4
12
EMDEs (RHS)
3
9

Index
60

Composite

Outlook

New orders

50

D. Inflation

Index, 100 = January 2020
150

Percent25

125

Mauritius
Kenya
South Africa
Seychelles

Percent
1000

2020 target
2019 average

20

Apr-21

Jan-21

Jan-21

C. International tourist arrivals forselected SSA countries

Oct-2020
Jul-200

Apr-200

Jan-2030

Jul-193

Jul-201

Jan-206

Oct-19

40
2

800

15

600

75

10

400

50

5

200

25

0

0

Jan-19Mar-19
May-19Jul-19Sep-19
Nov-19Jan-20Mar-20May-20Jul-20
Sep-20Nov-20Jan-21
Mar-21

20Q3
20Q4
21Q1
20Q3
20Q4
21Q1
20Q3
20Q4
21Q1
20Q3
20Q4
21Q1
20Q3
20Q4
21Q1
20Q3
20Q4
21Q1

100

0

AGO

GHA

KEN

NGA

ZAF

remittances to the region—a lifeline for household
consumption—have held up better than expected,
partly reflecting a shift from informal or
traditional non-digital cash payments to cheaper
digital transfers and improving job opportunities
in Sub-Saharan African migrant workers’
destination countries.

ZWE
(RHS)

Sources: Haver Analytics; John Hopkins University; Seychelles National Statistics Agency; World
Bank; Zimbabwe National Statistics.
Note: EMDEs = emerging market and developing economies; SSA = Sub-Saharan Africa.
A. Figure shows 7-day moving average of new COVID-19 cases. EMDEs line indicates the 7-day
moving average ending on May 25, 2021.
B. Composite PMI covers manufacturing and services. Sample includes Ghana, Kenya, Mozambique,
Nigeria, South Africa, Uganda, and Zambia. Last observation is April 2021.
C. Figure shows changes in tourist arrivals indexed to January 2020 = 100.
D. AGO = Angola; GHA = Ghana; KEN = Kenya; NGA = Nigeria; ZAF = South Africa; ZWE =Zimbabwe. Latest observation is 2021Q1. Orange lines show 2020 inflation targets for Ghana, Kenya,
Nigeria, and South Africa.

countries (Angola, Nigeria; figure 2.6.1.D). In
other countries in the region, however, subdued
demand has kept inflation contained (Kenya,
South Africa). Capital inflows to the region havelost momentum, owing to heightened uncertainty
about the course of the pandemic and weakgrowth prospects in some recipient countries.
Nonetheless, foreign direct investments in 2020
have been more resilient in SSA than the average
EMDE excluding China, recouping about ninetenths of their pre-pandemic levels. Workers’

Growth is expected to resume in SSA this year,
reaching 2.8 percent, and firm to 3.3 percent in
2022 (figure 2.6.2.A). This pickup is underpinned
by stronger external demand from the region’s
trading partners—mainly China and the UnitedStates—higher commodity prices, and bettercontainment of COVID-19. Despite the projected
rebound, SSA will have the second-slowest growth
this year among emerging market and developing
economy (EMDE) regions. Although somecountries have secured vaccine doses through the
COVAX facility, procurement and logisticalchallenges are envisioned to further delay thealready slow pace of vaccination in the region(figure 2.6.2.B). Policy uncertainty and thelingering negative effects of COVID-19 are also
expected to delay some major investments ininfrastructure and the extractives sector, and toweigh on the recovery (Central African Republic,
Equatorial Guinea, Kenya, Niger). The regional
forecast has been downgraded by an average 0.1
percentage point in 2021-22 below the January
projections, mainly reflecting worse-than-expected
weakness in investment, recurring bouts ofconflict, and limited policy space to further
support demand. Activity over the forecasthorizon is now set to expand by 0.7 percentage
point less than the average pace of 2010-19.
In per capita terms, income growth is forecast to
remain subdued, averaging 0.4 percent a year in
2021-22, after a 5 percent decline last year. As aresult, per capita income levels in 2022 will still be
4 percent, on average, lower than in 2019.
Conditions in the region’s fragile and conflictaffected countries are expected to be particularly
challenging, with the average per capita GDP levelin 2022 projected to be 5.3 percent below its 2019
level. In about half of this subset of SSA countries,

G LO BAL EC O NO MIC P ROS P EC TS | J U NE 2021

Growth is forecast to resume at a modest pace, reflecting improved
external demand and resilient commodity prices, but will remain below its
pre-pandemic average. Lingering procurement and administration hurdles
are expected to slow the pace of vaccinations in the region. The projected
weak per capita income growth in 2021-22 will be insufficient to reverse
setbacks in raising living standards caused by the pandemic last year inmany SSA countries.
A. GDP growth

B. COVID-19 vaccinationsFirst doses per hundred people
6
EMDEs excl China
Sub-Saharan Africa

42

May-21

Apr-21

Mar-210

Feb-21

In Nigeria, growth is projected to resume at amodest rate of 1.8 percent in 2021 and edge up to
2.1 percent next year, assuming higher oil prices, agradual implementation of structural reforms in
the oil sector, and a market-based flexible
exchange rate management (figure 2.6.2.D). The
expected pickup is also predicated on continued
vaccinations in the second half of this year and a
gradual relaxation of COVID-related restrictions
that will allow activity to improve. Nonetheless,
output in Nigeria is not expected to return to its
2019 level until end-2022.

FIGURE 2.6.2 SSA: Outlook

Jan-21

a decade or more of per capita income will be lostby the end of the forecast horizon. The pandemic
is also expected to worsen inequality through its
outsized negative effects on women, children, andunskilled workers (IMF 2021). Feeble per capita
GDP growth will be insufficient to improveconditions significantly in a region where 40
percent of the population struggles with extreme
poverty (figure 2.6.2.C).

95

SUB-SAHARAN AFRICA

C. Evolution of per capita GDP

D. Changes in commodity prices
between November 2020 and May
2021

Index (100 = 2010)
SSA
SSA excl Nigeria and South Africa
120
Nigeria and South Africa

Percent75
50

110

Angola’s economy is projected to expand by 0.5
percent in 2021 and 3.3 percent in 2022, on theback of stronger oil prices and government
consumption. Output is, however, not envisioned
to regain its 2019 level until toward the end of theforecast horizon. Oil production, whichplummeted last year, is forecast to remain below
pre-pandemic levels in the near term if OPEC+
cuts are maintained. Fiscal pressures and increased
policy uncertainty due to COVID-19 are expected
to hamper the recovery by delaying critical

25
100

0

90

Tea

Gold

RubberCoffeeCottonAluminum

Coal

Platinum

CopperCrude oil

2021

2019

2017

2015

2013

2011

2009

2007

80

Iron ore

-25

2005

Following a sharp recession in 2020, growth inSouth Africa is forecast at 3.5 percent this year and2.1 percent in 2022, with the recovery benefitingfrom a gradual relaxation of COVID-19
restrictions and stronger metal prices. Althoughexpansionary monetary and fiscal policies havebuoyed activity, GDP will remain well below its
2019 level through 2022. Heightened fiscalpressures and feeble public investment growthcontinue to dim South Africa’s near-term growthprospects. Major structural impediments topotential growth remain, including labor market
rigidities, reflected in continuing large-scale
unemployment.

Sources: Our World in Data (database); World Bank
Note: EMDEs = emerging market and developing economies; SSA = Sub-Saharan Africa.
A. “Industrial-commodity exporters” represents oil and metal exporting countries. Aggregate growth
rates calculated using constant GDP weights at average 2010-19 prices and market exchange rates.
“Industrial commodity exporters” excludes Angola, Nigeria, and South Africa.
B. Total number of people who received at least one vaccine dose. Last observation is May 25, 2021.
C. Chart reflects the evolution of real per capita GDP in constant U.S. dollars at average 2010-19
prices and market exchange rates, rebased to 2010 = 100. “SSA” sample comprises 47 countries.
D. Bars represent the percentage change in the May 2021 monthly price relative to November 2020.

investments to revamp aging oil fields and increase
production capacity in the oil sector.
Elsewhere in the region, growth is forecast to edge
up to 3.8 percent a year on average in 2021-22,
substantially below the 2010-19 average pace of
5.1 percent. Growth in industrial commodity
exporters—excluding Angola, Nigeria, and South
Africa—is expected to pick up to 2.4 percent in
2021-22; however, it will remain 1.5 percentage
points below its 2010-19 average (Cameroon,
Central African Republic, Democratic Republic of96

CHAPTER 2.6

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FIGURE 2.6.3 SSA: Risks
Recent currency depreciations in some Sub-Saharan African countries
may contribute to inflationary pressures. Food insecurity, rising conflicts,
and violence against civilians, fueled by political unrest and economic
disputes, could dampen the economic recovery. Fiscal deficits areprojected to gradually narrow, as the pandemic is brought under control;
however, a sharp increase in long-term sovereign bond yields could raisefiscal pressures in some SSA countries.
A. Changes in U.S. dollar exchange
rates versus SSA currencies

B. Food insecurity in SSA

Millions
200

SSA

EMDEs

150

30

100

20

50

10

0

0
Number of people
in food crisis

C. Forcibly displaced populations
Million30

Percent
40

Population
share (RHS)

D. Fiscal balance

Internally displaced persons
Refugees and asylum-seekers

20

10

0
2015

2016

2017

2018

2019

2020

Sources: FSIN and Global Network Against Food Crises; Haver Analytics; IMF; UNHCR; WorldBank.
Note: EMDEs = emerging market and developing economies; SSA = Sub-Saharan Africa.
A. Change in U.S. dollar exchange rates versus SSA currencies since December 2019. Monthly
averages. Last observation is April 2021. Index (100 = December 2019). Values above 100 indicate
depreciation. Shaded area indicates the 25-75 percentile range.
B. “Number of people in food crisis” reflects those classified as Integrated Food Security Phase
Classification (IPC/CH) Phase 3, i.e., in acute food insecurity crisis or worse, in 2020. “Population
share” reflects the sample median. Whiskers reflect the interquartile range. Sample includes 55
EMDEs and 35 SSA countries.
C. Asylum-seekers and refugees are people that flee their countries to seek asylum abroad or personthat need international protection. Internally displaced persons are people that have been forced toleave or abandon their homes, and who have not crossed an internationally recognized border.
D. Simple averages of sub-groups.

Congo). In Botswana, growth is projected torebound to 5.6 percent, on average, in 2021-22, asstronger metals and minerals prices, particularly
for diamonds and nickel, rekindle activity after aprecipitous collapse in the mining sector last year.
For many industrial commodity-exporting
economies, higher oil and metal prices will boost
export revenues, but will not be sufficient to close
fiscal deficits opened by last year’s shortfalls.
In agricultural commodity exporters, growth isforecast to resume at a faster pace of 4.5 percent a

year on average in 2021-22 (Benin, Côte d’Ivoire,
Ethiopia). Projections for a number of countries
assume sustained investment in infrastructure,
greater export diversification, and continued
implementation of reforms to improve businessenvironments (Rwanda, Senegal, Togo). However,
output growth in agricultural com-modity
exporters over the next couple of years is projected
to remain lower than the 2010-19 average growthrate of 5.7 percent.

Risks
Risks to the forecasts are tilted to the downside.
Some countries in SSA have invested in upgrades
to national vaccine distribution systems (Ghana,
Nigeria, South Africa). Nevertheless, persistentprocurement and logistical hurdles in many othercountries could delay widescale vaccinations more
severely than assumed. In South Africa, newoutbreaks of a more transmittable strain of
COVID-19 have contributed to the spread of thevirus and slowed the distribution of vaccinations.
Despite the strong scientific consensus that they
are safe and effective, there is some skepticism
about the vaccines among the public, with positive
opinions of COVID-19 vaccines’ safety andefficacy at just 21 percent in Senegal and 34
percent in Liberia (Afrobarometer 2021).1 In
addition to COVID-19, new Ebola outbreaks, if
not contained, could spread and increase the viralthreat in the region (Democratic Republic ofCongo, Guinea).
Oil prices could fall, owing to continued weakness
in global oil demand or a rapid increase in
OPEC+ oil production (World Bank 2021k). In
this scenario, some oil exporters could lose
revenues, especially those that have structural
capacity constraints and limited scope to quickly
ramp up their production.
Food insecurity remains a key risk. Food priceinflation has been exacerbated in some countries

1 Afrobarometer surveys show that 79 and 66 percent of people
were reluctant to get vaccinated in Senegal and Liberia, repectively(Afrobarometer 2021). Another survey across 15 African countries
showed that 59 percent (Democratic Republic of Congo) to 94
percent (Ethiopia) of respondents were willing to take COVID-19
vaccines (Africa CDC 2021; Lazarus et al. 2020).

G LO BAL EC O NO MIC P ROS P EC TS | J U NE 2021

by currency depreciations: about half of thecurrencies in the region have depreciated since thestart of 2021 (Ethiopia, Mozambique, Zambia;
figure 2.6.3.A). Currency depreciation and supply
constraints raised food prices by more than 20
percent in some countries early this year (Angola,
Ethiopia, Nigeria). Flood and drought could also
destroy crops, exacerbate food price inflation, andfurther weigh on household consumption, withoutsized negative effects on the most vulnerable
populations. Heavy rains, floods, cyclones, andwetter-than-normal weather conditions could leadto more locust breeding and infestation, and put
large swaths of the population, especially in
Eastern and Southern Africa, at a higher risk ofhunger (World Bank 2021n). Conflicts could
damage agricultural production, disrupt foodsupply, cause forced population displacements andmake food insecurity more acute, withsignificantly greater negative effects on womenand children (Brück and d’Errico 2019). With
about 100 million people in food crisis and 4 out
of 10 extremely poor people, the region could see
many millions more slip into severe foodinsecurity in the next couple of years (figure
2.6.3.B; FSIN 2021).
Rising conflicts and insecurity could also weaken
recoveries. There are concerns that thehumanitarian and economic toll of conflicts could
dampen the projected growth pickup. Insurgencies and abductions in the Sahel, as well as
political and electoral violence, could weigh moreheavily on growth and erode the living standardsof the most vulnerable people (figure 2.6.3.C).

SUB-SAHARAN AFRICA

A sudden rise in sovereign borrowing costs could
exacerbate fiscal pressures in some countries.
Despite still-benign global financial conditions,sovereign borrowing costs have remained higher
than before the pandemic in some countries(Angola, Ghana, Nigeria, South Africa). As
COVID-19 recedes, budget deficits, which havewidened substantially, are expected to gradually
narrow (Chad, Ethiopia, Zambia; IMF 2020;
figure 2.6.3.D). However, high debt burden andfiscal pressures could become more acute andprecipitate financial distress in some countries,
especially if borrowing costs increase sharply inline with further possible increases in long-termyields on government bonds in advanced
economies and major EMDEs. Heightened fiscalpressures could also delay government payments
to suppliers and contractors, cause revenue
shortfalls and bankruptcies among these firms, andincrease the likelihood of financial stress (Bosio etal. 2021).
There are also upside risks to the projections. The
pace of vaccinations could surpass expectations,for example, if the COVAX facility and bilateral
partners assist SSA countries in scaling up theirvaccination programs. This could restore
consumer and business confidence, stimulate
consumption and investment, lower unemployment, and strengthen the recovery. Also, astronger-than-expected rally in metals and oil
prices could boost exports, increase government
revenues, and ease fiscal pressures in industrial
commodity exporters.

97

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G LO BAL EC O NO MIC P ROS P EC TS | J U NE 2021

TABLE 2.6.1 Sub-Saharan Africa forecast summary

Percentage point
differences from January
2021 projections(Real GDP growth at market prices in percent, unless indicated otherwise)

EMDE SSA, GDP 1
GDP per capita (U.S. dollars)

2018

2019

2020e

2021f

2022f

2023f

2021f

2022f

2.7

2.5

-2.4

2.8

3.3

3.8

0.0

-0.2

0.0

-0.2

-4.9

0.2

0.7

1.2

0.0

-0.2

(Average including countries that report expenditure components in national accounts) 2
EMDE SSA, GDP 2,3
PPP GDP

2.7

2.5

-2.5

2.8

3.3

3.7

0.0

-0.1

2.8

2.6

-2.2

2.8

3.3

3.9

-0.1

-0.3

Private consumption

4.5

2.7

-3.6

1.9

2.6

2.6

0.0

-0.1

Public consumption

5.9

3.7

3.8

1.1

2.1

2.2

-0.1

0.0

Fixed investment

6.9

5.2

-7.7

1.7

3.3

5.7

-1.1

-2.1

Exports, GNFS 4

2.4

4.6

-8.5

6.8

5.4

5.5

0.1

-0.2

Imports, GNFS 4

8.4

5.8

-9.2

3.1

3.4

3.5

0.3

0.0

Net exports, contribution to growth

-1.6

-0.4

0.4

0.9

0.5

0.5

0.0

0.0

Eastern and Southern Africa

2.6

1.9

-3.4

3.2

3.6

3.9

-0.3

-0.3

Western and Central Africa

2.9

3.2

-1.2

2.3

2.9

3.6

0.4

0.0

SSA excluding Nigeria, South Africa, and Angola

4.7

4.1

-0.5

3.3

4.4

5.3

-0.4

-0.6

Oil exporters 5

1.4

2.1

-2.2

1.5

2.2

2.7

0.4

0.0

CFA countries 6

3.9

4.1

-0.8

3.3

4.2

5.5

0.1

-0.7

CEMAC

0.3

1.5

-2.9

1.6

1.5

2.9

0.1

-1.2

WAEMU

6.4

5.8

0.7

4.3

5.8

7.1

0.0

-0.3

1.0

1.1

-4.2

2.3

2.2

2.2

0.4

0.2

Memo items: GDP

SSA3
Nigeria

1.9

2.2

-1.8

1.8

2.1

2.4

0.7

0.3

South Africa

0.8

0.2

-7.0

3.5

2.1

1.5

0.2

0.4

Angola

-2.0

-0.6

-5.2

0.5

3.3

3.5

-0.4

-0.2

Source: World Bank.
Note: e = estimate; f = forecast; PPP = purchasing power parity; EMDE = emerging market and developing economy. World Bank forecasts are frequently updated based on new informationand changing (global) circumstances. Consequently, projections presented here may differ from those contained in other Bank documents, even if basic assessments of countries’ prospects
do not differ at any given moment in time.
1. GDP and expenditure components are measured in average 2010-19 prices and market exchange rates.
2. Subregion aggregate excludes the Central African Republic, Eritrea, Guinea, São Tomé and Príncipe, Somalia, and South Sudan, for which data limitations prevent the forecasting of GDP
components.
3. Subregion growth rates may differ from the most recent edition of Africa’s Pulse (https://www.worldbank.org/en/region/afr/publication/africas-pulse) due to data revisions and the inclusionof the Central African Republic and São Tomé and Príncipe in the subregion aggregate of that publication.
4. Exports and imports of goods and nonfactor services (GNFS).
5. Includes Angola, Cameroon, Chad, the Republic of Congo, Equatorial Guinea, Gabon, Ghana, Nigeria, and South Sudan.
6. The Financial Community of Africa (CFA) franc zone consists of 14 countries in Sub-Saharan Africa, each affiliated with one of two monetary unions. The Central African Economic andMonetary Union (CEMAC) comprises Cameroon, the Central African Republic, Chad, the Republic of Congo, Equatorial Guinea, and Gabon; the West African Economic and Monetary Union(WAEMU) comprises Benin, Burkina Faso, Côte d’Ivoire, Guinea-Bissau, Mali, Niger, Senegal, and Togo.

G LO BAL EC O NO MIC P ROS P EC TS | J U NE 2021

SUB-SAHARAN AFRICATABLE 2.6.2 Sub-Saharan Africa country forecasts1

Percentage point
differences from January
2021 projections(Real GDP growth at market prices in percent, unless indicated otherwise)
2018

2019

2020e

2021f

2022f

2023f

2021f

2022f

AngolaBenin
Botswana
Burkina Faso
BurundiCentral African Republic
Cabo Verde
Cameroon
Chad
Comoros
Congo, Dem. Rep.
Congo, Rep.
Côte d’Ivoire
Equatorial Guinea
Eritrea
Eswatini
Ethiopia 2
Gabon
Gambia, The
Ghana
GuineaGuinea-Bissau
Kenya
LesothoLiberia
Madagascar
MalawiMali
Mauritania
Mauritius
Mozambique
Namibia
Niger
Nigeria
Rwanda

-2.0
6.7
4.5
6.7
1.6
3.7
4.5
4.1
2.4
3.4
5.8
-6.2
6.9
-6.4
13.0
2.4
6.8
0.8
7.2
6.3
6.2
3.8
6.3
1.5
1.2
4.6
4.4
4.7
2.1
3.8
3.4
1.1
7.2
1.9
8.6

-0.6
6.9
3.0
5.7
1.8
3.1
5.7
3.7
3.2
2.0
4.4
-3.5
6.2
-5.6
3.7
2.2
8.4
3.9
6.1
6.5
5.6
4.6
5.4
1.4
-2.3
4.9
5.4
4.8
5.9
3.0
2.3
-1.6
5.9
2.2
9.4

-5.2
2.0
-7.9
0.6
0.3
0.0
-14.0
-2.1
-0.9
-0.5
0.8
-7.9
1.8
-4.9
-0.6
-3.1
6.1
-1.9
0.0
1.1
4.7
-2.4
-0.3
-5.8
-2.9
-4.2
0.8
-2.0
-1.5
-15.6
-1.3
-7.3
0.8
-1.8
-3.3

0.5
5.0
6.9
3.1
2.0
0.7
3.9
2.1
1.0
0.2
2.5
-0.1
5.7
2.4
2.0
1.3
2.3
1.5
3.5
1.4
5.5
3.0
4.5
2.9
3.3
2.0
2.8
2.5
2.7
3.6
1.7
1.8
4.7
1.8
4.9

3.3
6.0
4.3
5.0
2.5
2.8
5.2
2.7
2.5
2.2
3.0
2.3
6.0
-5.6
4.9
1.1
6.0
2.5
5.5
2.4
5.2
4.0
4.7
3.1
4.2
5.8
3.0
5.2
3.7
5.9
4.1
1.8
8.9
2.1
6.4

3.5
6.5
4.1
5.7
3.0
4.4
6.1
3.8
2.9
4.2
4.1
3.1
6.5
-2.3
3.8
1.5
7.5
3.6
7.0
3.6
5.2
5.0
5.8
3.2
4.7
5.4
4.5
5.0
6.0
4.3
6.3
1.5
12.1
2.4
7.5

-0.4
0.0
1.2
0.7
0.0
-2.5
-1.6
-0.9
-1.4
-2.2
0.4
1.9
0.2
5.2
-1.5
-0.2
2.3
-0.4
0.4
0.0
0.0
0.0
-2.4
-0.2
0.1
0.0
-0.5
0.0
-1.0
-1.7
-1.1
-0.4
-0.4
0.7
-0.8

-0.2
-0.5
0.3
0.3
0.0
-1.3
-0.8
-0.7
-0.8
-1.4
0.0
1.0
0.2
-4.4
-0.6
0.2
-2.7
-1.3
0.2
0.0
0.0
0.0
-1.0
-0.7
0.3
0.0
-1.9
0.0
-1.1
-0.9
-0.3
-0.2
-2.9
0.3
-0.4

São Tomé and Príncipe

2.9

1.3

3.1

2.7

3.5

4.0

-0.3

-2.0

Senegal
Seychelles
Sierra Leone
South Africa

6.4
3.8
3.4
0.8

5.3
5.3
5.5
0.2

-0.7
-13.3
-2.2
-7.0

3.1
1.8
3.0
3.5

4.9
4.3
3.7
2.1

8.9
4.2
4.0
1.5

-0.4
-1.3
-1.1
0.2

-0.7
0.5
-0.9
0.4

Sudan

-2.3

-2.5

-3.6

0.4

1.1

2.6

-2.1

-2.0

South Sudan 2
Tanzania
Togo 3
Uganda 2
ZambiaZimbabwe

-3.5
5.4
4.9
6.3
3.5
4.8

-0.3
5.8
5.3
6.4
1.4
-8.1

9.5
2.0
0.7
3.0
-3.0
-8.0

-3.4
4.5
3.4
3.3
1.8
3.9

1.5
5.5
4.6
4.7
2.9
5.1

3.0
6.0
5.0
6.4
3.8
5.0

0.0
-1.0
0.4
0.5
-0.1
1.0

1.5
-0.5
0.1
-1.2
-0.5
2.0

Source: World Bank.
Note: e = estimate; f = forecast. World Bank forecasts are frequently updated based on new information and changing (global) circumstances. Consequently, projections
presented here may differ from those contained in other Bank documents, even if basic assessments of countries’ prospects do not significantly differ at any given
moment in time.
1. Data are based on GDP measured in average 2010-19 prices and market exchange rates.
2. Fiscal-year based numbers.
3. For Togo, growth figures in 2018 and 2019 are based on pre-2020 rebased GDP estimates.

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CHAPTER 3

HIGH TRADE COSTS
Causes and Remedies

G LO BAL EC O NO MIC P ROS P EC TS | J U NE 2021

CHAPTER 3

As the global economy rebounds from the COVID-19-induced global recession, the accompanying strength inglobal trade offers an opportunity to jump-start the recovery in emerging market and developing economies(EMDEs). Lowering cross-border trade costs could help revive trade growth. Trade costs are high: on average,
they double the cost of internationally traded goods in comparison to domestic goods. Tariffs account for only
one-fourteenth of average trade costs; the bulk of trade costs are incurred in shipping and logistics, as well as
cumbersome trade procedures and processes at and behind the border. Despite a decline since 1995, trade costs
remain almost one-half higher in EMDEs than in advanced economies; about one-third of the gap may be
accounted for by higher shipping and logistics costs and another one-third by trade policy. A comprehensive
reform package to lower trade costs would include trade facilitation measures; deeper trade liberalization; efforts
to streamline trade processes and clearance requirements; better transport infrastructure; more competition indomestic logistics, retail, and wholesale trade; and less corruption. Some of these measures could yield large
dividends: among the worst-performing EMDEs, a hypothetical reform package to improve logistics
performance, maritime connectivity, and border processes to those of the best-performing EMDEs is estimated tohalve trade costs.

Introduction
Global trade collapsed by nearly 16 percent at theheight of the COVID-19-induced global
recession, in the second quarter of 2020, as
pandemic-related policies disrupted shipping,international travel, and domestic economic
activity. The subsequent rebound, however, wasswift, especially for goods trade, and much fasterthan after the 2007-2009 global financial crisis.
The recovery in global trade offers an opportunity
for emerging market and developing economies(EMDEs) to jump-start their still-weak recovery
from the pandemic. To seize this opportunity after
a decade of slow trade growth, however, many
countries may need to implement policies to lower
the cost of trade.
Trade, powered by global value chain integration,
has been an important engine of output andproductivity growth over the past several decades.
For example, a 1 percent increase in trade has
been estimated to lift per capita income by 0.2
percent over the medium term (World Bank
2020a).1 Global value chain participation, inNote: This chapter was prepared by Franziska Ohnsorge, Lucia
Quaglietti, and Cordula Rastogi.
1 Trade has been associated with greater quality of products(Fieler, Eslava, and Xu 2018), technology transfers (Henry, Kneller,
and Milner 2009), welfare gains from more varieties (Broda andWeinstein 2006), lower poverty (World Bank and WTO 2018), anddistributional gains for lower-income households since they tend to
spend more on tradable goods and services (Carroll and Hur 2020).
At the same time, trade has been associated with a shift of income
from labor to capital and, in some cases, environmental degradation(World Bank 2020a).

particular, has been associated with reduced
vulnerability of trade activity to domestic shocks
although it has come with increased sensitivity toexternal shocks (Espitia et al. 2021).
Yet, over the past decade, global trade growth has
slowed as global value chains matured, investment
weakness weighed on goods trade, and tradetensions emerged between major economies overthe past three years (World Bank 2015, 2017). As
a result, trade is no longer growing faster than
output: instead of being twice as fast as global
output growth, as it was during 1970-2008, trade
growth is now likely to continue broadly in stepwith real GDP growth, in line with its behavior
during the 2010s (figure 3.1; World Bank 2015).
Absent a major policy effort, weaker prospects for
global output growth in the 2020s than in the2010s are likely to be mirrored in weaker trade
growth, too (World Bank 2021a).
The recovery from the COVID-19-induced global
recession offers an opportunity to revive trade
growth as the global trade network is reshaped.
The pandemic is likely to accelerate changes insupply-chains that had already begun, including
by further regionalizing production networks andincreasing digitalization. Multinational corporations operating in EMDEs have already increased
the use of digital technologies and enhanced
diversification of suppliers and production sites toincrease their resilience to supply chain shocks(Saurav et al. 2020). As multinationals seek todiversify, EMDEs have a unique opportunity to

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FIGURE 3.1 Global trade
Instead of being almost twice as fast as global output growth, as it was
during 1970-2008, trade growth has expanded broadly in step with real
GDP growth since 2011. Goods trade accounted for 75 percent of global
trade during 2010-19.

A. Global trade and output growth

B. Composition of global trade,
2010-19

Percent
8

Percent100

Trade

Output

6

75

4

50

2

25

Goods

Services001970 - 20082011 - 2019

Advanced economies

EMDEs

Source: World Bank.
Note: EMDEs = emerging market and developing economies.
A. Bars indicate annual average growth. World output is real GDP growth and it is aggregated using
real U.S. dollar GDP weights at 2010-19 average prices and exchange rates as reported in the Global
Economic Prospects report. Trade growth is average of import and exports data.
B. Shares of global goods and services trade in global trade, average of 2010-19.

integrate into global supply chains, provided they
can offer a conducive business environment.2
Lower trade costs can help create a businessenvironment conducive to global supply chain
participation. Trade costs currently double theprice of internationally traded goods overdomestic ones, a phenomenon sometimes dubbed“thick borders” (World Bank 2009). In EMDEs,
trade costs are almost one-half higher than inadvanced economies. High trade costs raise theprice of exports and imports, hinder
competitiveness, limit participation in global value
chains, and erode consumer welfare by reducing
the availability of goods and services for
consumption. Lowering trade costs could help
boost trade flows and enhance welfare (World
Economic Forum and World Bank 2013).
Trade costs capture the costs faced by countries
when trading goods across borders, in excess of thecosts that the same goods face when tradeddomestically (box 3.1). Implicitly, trade costs cover

The supply chain response to the disruption caused by the 2011
earthquake in Japan may offer a guide to potential supply chain
changes after the pandemic. After the 2011 earthquake, supply chain
shifted away from the affected source but without any major nearshoring, reshoring or diversification (Freund et al. 2020).
2

the full range of costs associated with trading,including transportation and distribution costs,
tariffs and nontariff barriers, costs of informationand contract enforcement, legal and regulatory
costs, as well as the cost of doing business acrosscultures, languages, and economic systems(Anderson and van Wincoop 2003).
This chapter will examine the following questions.
•

What are trade prospects for the next decade?

•How large are trade costs?

•

What are the correlates of trade costs?

•

Which policies can help to lower trade costs?

Contribution to the literature. This chapter
updates and confirms an earlier literature that
estimates the magnitude of trade costs and its
correlates (Arvis et al. 2016; Novy 2013). Like thisliterature, the analysis in this chapter confines
itself largely to goods trade which accounts forabout 75 percent of total world and EMDE trade(figure 3.1). Like the previous literature, thischapter uses goods trade costs estimates from theWorld Bank/UNESCAP database for 1995-2018,the latest year for which data are available.3 The
chapter adds a quantitative assessment of the costsof border and customs processes to factors
considered elsewhere such as shipping, regulations,logistics, and governance and finds that such
border and customs processes statistically significantly raise trade costs.4 It builds upon theanalytical findings to discuss policy options forlowering trade costs in support of the recovery
from the COVID-19.
Main findings. This chapter offers the following
findings.
First, the COVID-19-induced global recession of2020 triggered a collapse in global trade, followed

3 For 2018, trade costs data is available for 199 countries,
including 150 EMDEs.
4 For governance, see Hou, Wang, and Zhie (2021). For shipping
and regulations, see Staboulis et al. (2020). For regional trade
agreements, see Bergstrand, Larch, and Yotov (2015). For logistics,
see Marti and Puertas (2019).

G LO BAL EC O NO MIC P ROS P EC TS | J U NE 2021

by a rapid rebound. Within six months, global
goods trade had recovered to pre-pandemic levels
and, by March 2021, global services trade waswithin 3 percent of pre-pandemic levels
notwithstanding travel and tourism services still
being just under 65 percent below. Looking
ahead, absent a major policy effort, trade growth islikely to be weak over the next decade as output
growth slows and as structural factors that
supported the rapid trade expansion in the past
have largely run their course. A reduction in trade
costs may help accelerate trade growth.
Second, trade costs are high: on average, they areequivalent to a 100 percent tariff and, hence, they
double the cost of internationally traded goods
over domestic goods. Tariffs account for only onefourteenth of average trade costs; the bulk are
incurred in transport and logistics as well as
cumbersome border and customs procedures.
Despite a one-third decline since 1995, trade costs
remain almost one-half higher in EMDEs than inadvanced economies. About one-third of the
explained difference in trade costs between
EMDEs and advanced economies can be
accounted for by higher shipping and logistics
costs, and another one-third by trade policy(including trade policy uncertainty).
Third, services account for almost one-third of thevalue added of manufacturing exports. Services
trade costs tend to be considerably higher than
goods trade costs and, therefore, also spill over
into higher goods trade costs. To a large extent,
services trade costs have been attributed toregulatory restrictions.
Fourth, trade costs can be lowered effectively
through comprehensive reforms packages thatstreamline trade processes and customs clearance
requirements, enhance domestic trade-supporting
infrastructure, increase competition in thedomestic logistics, retail, and wholesale tradeindustries; lower tariffs; lower compliance costswith standards; and reduce corruption. Tradeagreements that deepen integration beyond tariffs
cuts can help lower nontariff barriers. Empiricalanalysis suggests that an EMDE in the quartile of
EMDEs with the highest shipping and logistics
costs and most unwieldy customs and border

CHAPTER 3

processes could halve its trade costs if it improved
these conditions to match the quartile of EMDEs
with the lowest costs of shipping and logistics
and the least cumbersome border and customs
processes.

Prospects for trade growth
Trade growth slowdown over the past decade.
Global trade growth slowed over the past decade,from 5.8 percent per year during 1970-2008 tojust 3.8 percent per year during 2011-19. If global
trade had continued to expand according to its
historical trend, it would have been more than
one-quarter above its actual level in 2019 (figure3.2). With the exception of Europe and Central
Asia (ECA), the slowdown in trade growth wasbroad-based, extending across all EMDE regions.
In Sub-Saharan Africa (SSA), trade growth has
been particularly weak, at about half the EMDE
average after the global financial crisis. At thesectoral level, the slowdown was concentrated ingoods trade. Services trade continued to outpace
world GDP before the pandemic, rising 1.5
percentage point per year faster on average during
2011-2019.
Declining responsiveness of trade to economic
activity. The slowdown in trade growth reflected
weak economic growth in the decade following
the global financial crisis but also a weakening
responsiveness of trade to global economic growth(the income elasticity of trade). Estimates from anerror correction model for 1970-2019 suggest thatthe long-run trade elasticity has declined from
2.2 during 1990-2011 to around 1 during 201119.5 In EMDEs, the ratio of import growth toincome growth declined from 1.7 during 19902008 to 0.9 during 2011-19. The slowdown in
the global income elasticity of trade in the decade
before the pandemic hit reflected several factors(World Bank 2015).

5 The model allows both the long-run elasticity of trade withrespect to income (which captures trend, or structural, factors) andthe short-run elasticity (which is relevant to short run or cyclicaldevelopments). For further details on the model specification see
Constantinescu et al. (2014)

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FIGURE 3.2 Evolution of global trade•

Changes in the composition of global demand.
The composition of global demand has shiftedaway from advanced economies towards
EMDEs and towards less trade-intensive
components of aggregate demand. EMDEs,
which typically have a lower trade-intensity
than advanced economies, accounted for justunder two-fifths of global output during
2011-19, compared with just over one-quarter
during 1980-2008 (Cabrillac et al. 2016;
World Bank 2015). Investment, which tends
to be more trade-intensive than other components of demand, has been weak over the past
decade, especially in EMDEs (Bussière et al.
2013; Kose et al. 2017). In China, a policyguided shift away from investment-led growthand, in commodity exporters, prolonged
weakness of commodity prices slowed
investment activity (World Bank 2017, 2019).

•

Maturing global value chains. Over the past
decade, the expansion of global value chains
slowed (Antras and Chor 2021; World Bank
2015, 2020a). The overall share of global
value chain-related trade in total world tradegrew significantly in the 1990s and early
2000s but has stagnated or even declined since2011. This has in part reflected rising laborcosts in key emerging markets, a greaterappreciation by firms of supply risks in thewake of some natural disasters, as well as
mounting trade tensions over the past five
years (Cabrillac et al. 2016; World Bank
2020a).

•

Trade tensions. A slowing pace of tradeliberalization may also have contributed to a
declining trade elasticity (World Bank 2015).
Tariff rates levelled off in both advanced
economies and EMDEs in the early 2000s. At
the same time, the use of regulatory measuresand nontariff barriers such as export subsidies,
restrictions on licensing or foreign direct
investment, and domestic clauses in public
procurement increased (Niu et al. 2018).

Global trade growth has slowed since 2011, in part as a result of slowing
output growth. In addition, the elasticity of trade to global economic activity
has fallen over the past decade amid slowing global investment, maturing
global value chains, and mounting trade tensions. Global trade collapsed
during the pandemic but rebounded quickly, with the exception of travel
and tourism services, which remain depressed.
A. World trade, actual and trend

B. Trade elasticities

Index, 100 = 1980
Actual1,000

Estimates of long-run elasticities
2.5

Historical trend

800

2.0

600

1.5

400

1.0

200

0.5
1980
1983
1986
1989
1992
1995
1998
2001
2004
2007
2010
2013
2016
2019

0
0.0
1970-2019 1970-90 1990-2011 2011-19

C. Aggregate demand components
relative to historical trend, 2019

D. Import content of aggregate
demand, 2014

Index, 100 = trend volume in 2019
Investment
Consumption
120
Government expenditure

Percent
40

110

30
20

100

10

90
80
Advanced
economies

EMDEs

0

World

Investment

Exports

E. Share of global-value-chain-relatedtrade in global trade

F. World trade

Share of global trade60

Index, 100 = 2019120

PrivateGovernment
consumption expenditure

Goods

Services

Travel

100
80

50

60
40

40

20

Sources: Auboin and Borino (2017); Constantinescu et al. (2014); CPB Netherlands Bureau for
Economic Policy Analysis; World Bank; World Trade Organization.
Note: EMDEs = emerging market and developing economies; GVC = global value chain.
A. World trade refers to average imports and exports volumes. The historical trend is computed
over the 1980-2019 period, using a Hodrick-Prescott filter.
B. Estimates from an error correction model estimated over the period 1970-2019. The modelallows both the long-run elasticity of trade with respect to income (which captures trend, or
structural, factors) and the short-run elasticity (which is relevant to short run or cyclicaldevelopments). For further details on the model specification see Constantinescu et al. (2014).
C. Trend levels in 2019 are obtained on the basis of the historical average trend growth computed
over the period 1995-2008 and rebased to 100. Bars below 100 show deviations of actual 2019
levels from trends.
D. Data for 2014 as estimated in Auboin and Borino 2017.
E. Share of GVC trade in global trade as defined in World Development Report 2020. Latest
available data is 2015.
F. Goods trade is the average of import and exports volumes, services trade is the average ofimports and exports values. Goods trade data in 2021 relative to average of 2019, services andtravel trade data relative to corresponding month in 2019. Total goods trade volumes for 38
advanced economies and 43 EMDEs, as reported in the CPB World Trade Monitor. Services trade
and travel data from WTO statistics. Sample for services trade and travel includes 13 advanced
economies and 16 EMDEs. Last observation is March 2021.

Mar-21

Oct-20Dec-20Jun-20Aug-20

Apr-20Feb-20

2015

2010

2005

2000

1995

1990

1985

1980

1975

1970

2019

0

30

Trade collapse in early 2020. The global recessionof 2020 was the deepest since the Second World
War and was accompanied by a collapse in global
trade of nearly 16 percent in the second quarter ofG LO BAL EC O NO MIC P ROS P EC TS | J U NE 2021

2020—6 percentage points steeper than in thefirst quarter of 2009, at the height of the global
recession triggered by the global financial crisis.
Unusually for global recessions, the collapse inglobal services trade was even larger than thecollapse in global goods trade.
Goods trade rebound in late 2020. The recovery,
however, was swifter than in the global financial
crisis, particularly for goods trade. Goods trade
had returned to pre-COVID-19 levels within six
months of the trough of the trade collapse, 12months earlier than after the global financial crisis.
The recovery in goods trade was fairly broadbased, with global imports of cars, capital goods,
consumer goods, and industrial supplies all back at
or above pre-pandemic levels by January 2021
(IMF 2021). Global value chains have remained
broadly resilient to the pandemic as companies
increasingly turned to digital technologies anddiversified suppliers and production sites (Saurav
et al. 2020). Nevertheless, recently, some strains in
supply chains have emerged. The strong recovery
in global manufacturing has raised demand forcontainerized exports from Asia, pushing up
freight rates. The week-long blockage of the Suez
Canal temporarily stretched maritime supply
chains further (World Bank 2021b).
Unusually pronounced drop in services tradeduring the pandemic. The decline in services
trade was considerably more pronounced and therecovery more subdued than in the global financial
crisis, reflecting to some extent a collapse in global
tourism as countries closed their borders to stem
the spread of the pandemic. In March 2021,
global services trade was still 3 percent below prepandemic levels, whereas at a similar point after
the global financial crisis, services trade hadalready recovered. While most components ofservices trade, including telecommunications andfinancial services, have fully recovered to prepandemic levels, travel services remain just under
65 percent below. The recovery in services trade
was concentrated in East Asia and the Pacific(EAP) where China’s services trade had already
returned to pre-pandemic levels by December
2020. Service trade plays an increasingly
important role in the global economy: Since 2000,
global travel and tourism revenues have nearly

CHAPTER 3

tripled, with the sector now accounting for 10
percent of global GDP and about 30 percent of
global services trade, and providing one out of ten
jobs worldwide (World Bank 2020b).
Weak prospects for global trade growth. Global
trade is forecast to grow by 8.3 percent in 2021,
reflecting the strength of global growth, but also
the diminishing trade intensity of the global
recovery. The structural factors that supported therapid trade expansion in the two decades
preceding the global financial crisis seem to havelargely run their course, with the recent weakness
in the relationship between global trade growthand global output growth likely to constitute a“new normal.” Since global output growth itself is
expected to slow going forward compared to thepast decade, world trade growth would decline
accordingly (World Bank 2021a). Over the 2020s,
trade growth may slow by another 0.9 percentage
point from the 2010s, broadly in line with global
potential output growth, unless major policy
efforts significantly increase the growth of trade(World Bank 2021a). The weakness may be more
pronounced in goods trade, where new technologies may allow more localized and more
centralized production (Coulibaly and Foda 2020;
Zhan et al. 2020). In contrast, in services trade,
rapidly growing data services promise a return torapid expansion once the pandemic is brought
under control (World Bank 2021c).

Patterns in trade costs
High, although declining, trade costs. Average
trade costs are high, particularly in EMDEs where
they double the price of goods tradeddomestically, and are far in excess of the average
tariff of 7 percent.6 Trade costs in EMDEs arealmost one-half higher than those in advanced
economies (figure 3.3). This is despite a sharp
decline over the past two and a half decades(Bergstrand, Larch, and Yotov 2015). In 2018,average trade costs were about one-quarter lower

6 This estimate of trade costs is of the same order of magnitude asother studies—such as Arvis et al. (2016) or Anderson and van
Wincoop (2004) but is larger than others based on individual retailprice data such as one for the United States and Canada (Gopinath etal. 2011).

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FIGURE 3.3 Trade costs
Trade costs are roughly equivalent to a 100 percent tariff—far above actual
average tariff rates. Despite a decline over the past two decades, trade
costs remain high, especially for agricultural products and in EMDEs.
Trade costs for agricultural goods are highest in South Asia and SubSaharan Africa, while trade costs in the manufacturing sector are thehighest in Latin America and the Caribbean and Sub-Saharan Africa.

A. Average trade costs in 1995 and2018

B. Average trade costs in EMDE
regions

Percent
200

Percent
300

1995

2018

1995

2018

200
100
100
0
Advanced
economies

EMDEs

0
EAP

ECA

LAC

MNA

SAR

SSA

C. Average trade costs for agriculture
in 1995 and 2018

D. Average trade costs for agriculture
for EMDE regions in 1995 and 2018

Percent
300

Percent
400

1995

2018

1995

2018

300

200

200
100
100
0
Advanced
economies

0

EMDEs

EAP

E. Average trade costs for
manufacturing in 1995 and 2018
Percent
200

1995

ECA

LAC

MNA

SAR

SSA

F. Average trade costs for EMDE
regions for manufacturing in 1995
and 2018
2018

Percent
250

1995

2018

200

150

150

100

100
50
50
0
Advanced
economies

EMDEs

0
EAP

ECA

LAC

MNA

SAR

SSA

Sources: Comtrade (database); ESCAP-World Bank Trade Costs Database; World Bank; World
Trade Organization.
Note: EMDEs = emerging market and developing economies; EAP = East Asia and Pacific,
ECA = Europe and Central Asia, LAC = Latin America and the Caribbean, MNA = Middle East andNorth Africa, SAR = South Asia, SSA = Sub-Saharan Africa. Bilateral trade costs (as defined in the
ESCAP database) measure the costs of a good traded internationally in excess of the same goodtraded domestically and are expressed as ad valorem (tariff) equivalent. Bilateral trade costs areaggregated into individual country measures using 2018 bilateral country exports shares from the
Comtrade database. Regional and sectorial aggregates are averages of individual country measures.
Bars show unweighted averages, whiskers show interquartile range. Sample in 1995 includes 33
advanced economies and 46 EMDEs, 5 in EAP, 7 in ECA, 4 in MNA, 15 in LAC, 2 in SAR, and 13 in
SSA. Sample in 2018 includes 21 advanced economies and 58 EMDEs, 11 in EAP, 14 in ECA, 7 in
MNA, 13 in LAC, 3 in SAR, and 10 in SSA.

in advanced economies and almost two-fifths
lower in EMDEs than in 1995. Average trade
costs fell in all sub-regions except East Asia andPacific, with the fastest decline occurring in SubSaharan Africa (SSA). As discussed in the next
section, both the decline in trade costs and thehigh trade costs in EMDEs reflect a wide range offactors.
Trade costs across EMDE regions. Among
EMDE regions, average trade costs range fromtariff equivalents of 93 percent in Europe andCentral Asia (ECA) to 134 percent in South Asia
(SAR), with wide heterogeneity within regions.
This heterogeneity is particularly pronounced in
East Asia and Pacific (EAP). Within Europe andCentral Asia (ECA), countries that are members of
the European Union or geographically close to it
have two-thirds the average trade costs of othercountries that are less integrated into EU global
value chains.
Trade costs for agricultural goods. Trade costs for
agricultural goods are about four-fifths higher thanfor manufacturing goods. Agricultural trade costs
are particularly high in SAR and manufacturing
trade costs are particularly high in SSA and Latin
America and the Caribbean (LAC). Agricultural
trade costs declined less than trade costs in
manufacturing over the period 1995 to 2018, inpart because of slower progress in tariff reductions
and narrower coverage of trade agreements.
Trade costs for services. Goods and services tradeare complementary. Tradable services are key links
between stages of value chains and “enablers” oftrade in goods, in particular communications,finance, business and logistics services. As a result,services account for almost one-third of the value
added of manufacturing exports (OECD 2018).
Comparable cross-country data on services trade
costs and on policies affecting trade in services are
however scant. The few attempts to quantify trade
costs in services in the literature rely on observed
trade and value-added flows-akin to themethodology embedded in the World Bank/UNESCAP database for goods trade (Miroudot,
Sauvage, and Shepherd 2010) or rely on an
inventory of services trade restrictions (Benz2017). Both types of studies suggest that tradeG LO BAL EC O NO MIC P ROS P EC TS | J U NE 2021

costs for services are considerably higher thantrade costs for goods and, in contrast to goods
trade costs, have not fallen since the 1990s.

Correlates of trade costs
Methodology and data. A panel gravity equation
with time fixed effects is used to quantify thecorrelates of trade costs (box 3.1). The regression
uses bilateral data for 2007-2018 for 23 advanced
economies and 63 EMDEs for which data on
trade costs as well as its determinants is available
from 2007. The sample is heavily constrained bydata availability. For example, the Doing Businessindicator for ease of trading is not available before
2006. Bilateral, sector-specific goods trade costs
are regressed on geographical and cultural barriers(distance, common border or adjacency, andcommon language); trade policy (sector-specificbilateral tariffs, membership of a regional trade
agreement and a proxy of trade policy
uncertainty); logistics and connectivity (Logistics
Performance Index LPI and the Liner Shipping
Connectivity Index LSHI); and regulatory barriers(Doing Business score index for the time and costs
it takes exporters to comply with documentaryand border regulations).7 The model is estimatedin two versions: for all sectors of the economy andfor manufacturing separately, and both
specifications explain over half of the variation of
trade costs in the sample (table 3.1).
Tariffs. Tariffs are associated with higher trade
costs, both overall and for manufacturing morenarrowly. While statistically significant, they havecontributed less than other components to the
reduction in trade costs over time or the difference
between trade costs in EMDEs and advanced

7 The World Bank’s Logistics Performance Index (LPI) is based ona survey of global freight operators and express carriers about
customs, logistics and transport infrastructure, international
shipments, logistics competence, tracking and tracing, and timeliness.
Logistic managers are asked questions related to the country ofoperation, including about the quality and transport infrastructure,
the ability of the country to track and trace consignments, and thenumber of forms needed to be submitted to obtain clearance ofimports and exports. The UNCTAD’s Liner Shipping Connectivity
Index is based on each country’s number of ships, their containercarrying capacity, maximum vessel size, the number of services, andthe number of companies that deploy container ships in a country’s
ports.

CHAPTER 3

economies. After steep reductions in the 1990s
and early 2000s, manufacturing tariffs now
average 6 percent in EMDEs—somewhat less than
the average tariff of 7 percent across all sectors—
and around 2 percent in advanced economies(figure 3.4). Agricultural tariffs remain two(EMDEs) and more than three (advanced
economies) times higher than manufacturing
tariffs.
Regional trade agreements. Membership of aregional trade agreement lowers bilateral trade
costs statistically significantly by just under onefifth.8 All advanced economies are part of at least
one regional trade agreement. The EU alone
participates in 46 regional trade agreements, andother advanced economies are members of 75
regional trade agreements. Among EMDEs,
membership of regional trade agreements is lesscommon, although all but a handful of EMDEs
are members of at least one agreement. Suchagreements are most common in ECA, whereparts of Central and Southern Europe are EU
members and parts of Eastern Europe and Central
Asia are members of the Free Trade Area between
Members of the Commonwealth of Independent
States, and in LAC where most countries are partof MERCOSUR and trade agreements with
the United States, such as the U.S.-MexicoCanada Agreement (USMCA) or the Dominican
Republic-Central America Free Trade Agreement(CAFTA-DR).
Shipping and logistics costs. Transit delays havebeen identified as more important deterrents totrade flows than geography (Freund and Rocha2011). Poor shipping connectivity, inadequate
logistics infrastructure and services as well as
underlying regulations are associated withsignificantly higher trade costs. The one-week
blockage of the Suez Canal, through which 12
percent of global trade merchandize traffic passes,

8 This is somewhat lower than found by Bergstrand, Larch, andYotov (2015) who estimate that an economic integration agreement
lowers trade costs by 30 percent in a smaller and earlier sample (41mostly advanced economies during 1996-2000). Qualitatively, it isconsistent with Brenton, Portugal-Perez, and Regolo (2014) who findthat trade agreements help to lower the price differential between
domestic and traded foods.

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BOX 3.1 Understanding the determinants of trade costs
Shipping and logistics, borders and customs processes, tariffs, and membership of regional trade agreements are statisticallysignificant factors that influence trade costs.

Introduction
Elevated trade costs remain a significant impediment tocross-border trade. On average, trade costs double the costof an internationally traded good over a similar domestic
good. In EMDEs, trade costs are almost one-half higher
than in advanced economies despite a decline since 1995.
This box considers the determinants of trade costs
empirically by examining the following questions.
•

How are trade costs measured in the literature?

•

What are the main determinants of trade costs,
empirically?

The results suggest that geographical distance and highbilateral tariff rates are positively associated with trade
costs, including in the manufacturing sector. In contrast,
common borders (adjacency), common language, andmembership of a common regional trade agreement tend
to reduce trade costs. Policies aimed at facilitating trade
including maritime connectivity and stronger logistics
performance are also associated with lower bilateral trade
costs, as well as indicators related to the ease of doing
trade.

Measures of trade costs
Conceptually, trade costs are the excess cost of aninternationally traded good compared with a similar goodtraded domestically. By construction, trade costs cantherefore move without any change in external costs oftrading, simply as a result of changes in domestic trading
costs. To measure trade costs, two main approaches havebeen developed in the literature: direct and indirect
approaches.
Direct approaches rely on observable data that serve as aproxy for individual components. For instance, measuresof costs faced at the border are often based on counting the
average number of days that is needed for a good to crossthe border, while transport costs are often inferred fromthe cost of ocean and air shipping (Hummels et al. 2007).
Policy barriers such as tariffs and nontariff measures are
directly available from a range of statistical sources. Direct
approaches suffer from a series of limitations, including thefact the underlaying variables are only partially observableand can hardly be converted to plausible tariffs ad-valorem

equivalents, which makes it difficult to compare them but
also to aggregate them into a summary measure of trade
costs (Anderson and van Wincoop 2004). Therefore, trade
cost estimates taken from such measures tend to be only
partial.
Indirect approaches aim to circumvent these difficulties.
These infer trade impediments top-down, from measuresof trade flows and aggregate value added.a Under thisapproach, trade costs correspond to the difference between
the trade flows that would be expected in a hypothetical“frictionless” world and what is observed in the data andare computed relative to domestic trade costs. Measuresbuilt through the indirect approach can be tracked overtime and include all observed and unobserved factors that
explain why trading with another country is more costly
than trading domestically. Novy (2013) develop a microfounded measure of aggregate bilateral trade costs by atheoretical gravity equation for the trade cost parametersthat capture the barriers to international trade. The
resulting solution expresses the trade cost parameters as afunction of observable trade data, providing a microfounded measure of bilateral trade costs. The measure iseasy to implement empirically for a number of countries
with readily available data. One drawback is that thecontribution of the individual cost factors cannot be easily
disentangled by simple inspection of the measure. A way
proposed in the literature to overcome this is to combine
indirect and direct measurements into a single regression(Arvis et al. 2013).

Determinants of trade costs
To estimate the contribution of different determinants oftrade costs, a gravity model is estimated for a panel of 23
advanced economies and 63 EMDEs with annual data forboth trade costs and all determinants of trade costs over
2007-2018.

Data
The estimation relies on bilateral trade costs from the
UNESCAP-WB Trade Costs Database. Following Novy
(2013), Arvis et al. (2013) derive measures of annual trade
costs for the period 1995-2018. For any given country paira. Domestic trade flows are proxied by gross domestic output on agross shipment basis or, if this is unavailable, gross value added.

G LO BAL EC O NO MIC P ROS P EC TS | J U NE 2021

CHAPTER 3

BOX 3.1 Understanding the determinants of trade costs (continued)
i and j, trade costs are obtained as geometric averages ofcosts faced by country i when exporting to j and vice versa.
They are computed according to the formula below:(Xii Xjj)/(Xij Xji)1/2 (σ-1)
where Xij represents trade between countries i and j (goods
produced and sold in i and goods produced and sold in j)and σ refers to the elasticity of substitution. This measurecaptures international trade costs relative to domestic trade
costs. Intuitively, trade costs are higher when countries
trade more with themselves than they do bilaterally, i.e., as
the ratio (Xii Xjj)/(Xij Xji) increases. Intra-national (i.e.,
domestic) trade is proxied by the difference of gross output
and total exports.
Trade costs thus computed, implicitly account for a wide
range of frictions associated with international trade,including transport costs, tariffs and nontariff measures
but also costs associated with differences in languages,
currencies and import or export procedures. Trade costs
are expressed as ad valorem (tariff) equivalent of the valueof traded goods and can be computed as an aggregate
referring to all sectors of the economy, but also specificallyfor the manufacturing and agriculture sectors.

Estimation
Gravity equations are widely used as a workhorse to
analyze the determinants of bilateral trade flows. Chen andNovy (2011) and Arvis et al. (2013) employ a gravity
specification also in the analysis of the determinants ofbilateral trade costs in a cross-sectional set. In line alsowith Moïsé, Orliac, and Minor (2011), this study
estimates determinants of trade costs in a panel
specification
The regression equation takes the following form:

proxy for trade policy uncertainty is also included. In linewith Osnago, Piermartini, and Rocha (2018), trade policy
uncertainty is defined as the gap between binding tariffcommitments and applied tariffs. To ascertain the role ofpolicies aimed at facilitating trade, indexes of logistic
performance (LPI) and maritime connectivity (LSHI) andan indicator of doing business related to compliance of
documentary and border checks is included.
Specifically, the World Bank’s Logistics Performance Index(LPI) is based on a survey of global freight operators andexpress carriers about customs, logistics and transport
infrastructure, international shipments, logistics competence, tracking and tracing, and timeliness. UNCTAD’s
Liner Shipping Connectivity Index is derived from thenumber of ships, their container-carrying capacity,maximum vessel size, number of services, and number ofcompanies that deploy container ships in a country’s ports.
The World Bank’s Doing Business ease of trading acrossborders index is based on surveys of experts on regulations
regarding customs documentation and time and costs ofcustoms, clearance. The choice of variables in the panel isinformed by Arvis et al. (2013), but also by findings fromthe stylized facts presented in the main text.b Full details ofdata and sources are presented in table 3.1.
Since trade costs data are obtained as bilateral geometricaverages, trade facilitation indicators available at individual
country level are transformed into bilateral measures bytaking the geometric average of each country pairdirection. Therefore, the unit of analysis is each individual
country pair. Time fixed effects η t are included in theestimation to control for country characteristics that mightvary over time. As the measures of trade costs net out
multilateral resistance components, in line with Novy
(2013), the estimation does not include additional fixed
effects.c Instead, to control for possible correlation of errors
terms, clustered standard errors by country pairs are used.

TCijt = β 1 RTAijt + β 2 tariffijt + β 3 LSHIijt + β 4 LPIijt+ β 5 Ease of Tradingijt+ β 6 Trade Policy Uncertaintyijt+ β 7 Gravityij + η t + εijt

(1)where for any given country pair ij, bilateral trade costs
TC observed at time t are regressed on a wide range ofcandidate drivers. These include standard gravity indicators such as distance, a common language and a common
border (adjacency), but also trade policies such as bilateral
tariff rates and belonging to a regional trade agreement. A

b. Nontariff barriers or exchange rate volatility would ideally havebeen included in the regression estimation. However, these are difficult tomeasure and the available cross-country, over time-panel measures were
too crude to yield statistically significant results. Ideally, the regression
would also be applied to services; however, the database does not offer
trade cost for services.
c. Outward multilateral resistance captures the fact that trade flows
between i and j depend on trade costs across all potential markets for i’s
exports, while inward multilateral resistance captures the fact thatbilateral trade depends on trade costs across all potential import markets.
Therefore, the two indices summarize third-country effects that might
affect bilateral trade flows between i and j. Novy (2013) shows that
simple algebra makes it possible to eliminate the multilateral resistanceterms from the gravity equations, and in so doing he derives anexpression for trade costs.

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BOX 3.1 Understanding the determinants of trade costs (continued)
FIGURE B3.1.1 Estimated contributions to trade costs
The panel estimation accounts for much of the difference in average trade costs between EMDEs and advanced economies
and the difference between 2008 and 2018. About one-third of the predicted difference between average trade costs in
EMDEs and advanced economies and two-thirds of the predicted difference between 2008 and 2018 is attributed to costs
associated with shipping and logistics.
A. Actual and model-predicteddifferences in overall trade costs

B. Model-based contributions todifferences in overall trade costs

C. Model-based contributions todifferences in manufacturing trade costs

Ratio
1.5

Log differences
0.6

Log differences
0.6

ActualModel-predicted

0.4

Border regulation
Connectivity and logistics
Trade policy
Geographic and cultural factors

Border regulation
Connectivity and logistics
Trade policy
Geographic and cultural factors

0.4

1.0
0.2

0.2

0.0

0.0

0.5

0.0

-0.2

2018 versus 2008

EMDEs versus
advanced economies-0.2
2018 versus 2008

EMDEs versus
advanced economies

2018 versus 2008

EMDEs versus
advanced economies

Sources: Comtrade (database); World Bank.
Note: EMDEs = emerging market and developing economies; RTA = regional trade agreement; LSCI = liner shipping connectivity index; LPI = logistics performanceindex.
Predicted ratios of overall trade costs between the two groups indicated on the x-axis (A) or the contributions (B, C) to differences in logarithms of trade costs. Computed
using coefficient estimates for each variable and the following realizations for each indicator included in the regression: trade-weighted averages for all countries in thesample in 2018 minus trade-weighted average for all countries in the sample for 2008 for the comparison over time and trade-weighted averages for EMDEs minus
trade-weighted average for advanced economies in 2018. Trade policy includes tariffs and membership in regional trade agreements; geographic and cultural factors
includes distance, common border, and common language; border regulation includes the ease of trading; and connectivity and logistics include liner shipping
connectivity index and logistics performance index. Gray horizontal line (A) indicates 1, that is, no difference in trade costs between the two groups indicated on
the x-axis.

Two models are estimated: a general model for thedeterminants of trade costs in all sectors of the economy,
and a sectoral model for the determinants of trade costs inthe manufacturing sector. The two models follow thespecification presented in equation 1, but trade costs andtariff rates are sector specific. Table 3.2 shows results fromthe estimations.

Results
All variables have the expected signs and magnitudes andare in line with the literature. Geographical distance andhigh bilateral tariff rates are positively associated with trade
costs. In contrast, adjacency, common language andmembership of a common regional trade agreement tend
to reduce trade costs. Policies aimed at facilitating trade
including maritime connectivity and stronger logistics
performance are also associated with lower bilateral trade
costs, both overall and in the manufacturing sector.
Indicators related to the ease of doing trade are also
statistically significant, with countries characterized bymore cumbersome border processes facing higher trade

costs on average. Trade uncertainty is also positively
associated with trade costs, including in the manufacturingsector.
The panel estimation explains most of the difference intrade costs between the average EMDE and the averageadvanced economy, and attributes about one-third of thisgap to higher shipping and logistics costs in EMDEs andanother one-third to trade policy (including trade policy
uncertainty). The regression also explains most of thedecline in average trade costs between 2008 and 2018 andattributes two-thirds of it to falling shipping and logistics
costs.

Robustness
The estimations are robust to different specifications, lag
structure, and estimators. An alternative estimation
performed with the PPML estimator which is often
employed in the literature on gravity models (Santos Silva
and Tenreyro 2006) to control for heteroskedasticity
produces similar results to the ones presented in table 3.2.

G LO BAL EC O NO MIC P ROS P EC TS | J U NE 2021

CHAPTER 3

BOX 3.1 Understanding the determinants of trade costs (continued)
Adding further variables including the bilateral realexchange rate, GDP per capita income and a dummy
characterizing landlocked country pairs does not alter the
regression results, as the variables turn out to bestatistically insignificant. Adding country fixed effects does
not alter the stability of the model, with both the gravity
and trade policy variables retaining the expected sign andstatisticallysignificant
effects.
Concerns
about
multicollinearity (including regarding the 0.5 correlations
between the LPI with the LSHI and the Ease of Trade
indicators) are mitigated by the results of a Variable
Inflation Factor test, a standard diagnostic test conducted
to detect the presence of multicollinearity among theregressors. They are also mitigated by the statisticalinsignificance of the difference between average bilateral
tariffs in country pairs in a regional trade agreement andthose outside it.
A few caveats apply to the analysis. One limitation relates
to the interpretation of the effect of policies on trade costs.
Changes in trade costs between two countries can be due toactions taken by one government or the other, or both
together. The fact that the variables featuring in the
regression (including the measure of trade costs) areafter a container ship accident in March 2021 wasa reminder of the critical role of shipping in global
trade (World Bank 2021b). For advanced
economies, poor logistics have been more important sources of trade costs than geographic distance (Marti and Puertas 2019; Staboulis et al.
2020). Global shipping connectivity and logistics
remain considerably poorer in EMDEs than inadvanced economies (figure 3.4) and trade costs
remain higher in countries with poorer shipping
connectivity and logistics (figure 3.5). The
regression results suggest that a shift from thebottom quartile on these two indicators’ scores tothe highest quartile—equivalent to a comparison
between Sierra Leone and Poland—is associatedwith about one-tenth to one-third lower trade
costs (box 3.1).
Regulatory cost. Trade costs are significantly
higher when compliance with trade and customs
procedures and processes is more difficult

computed as country pairs geometric averages doesn’tallow us to disentangle the source of policy actions. In
addition, due to lack of sufficiently long time-series data,
the approach taken here does not take into account thepossibility that the regression coefficients have changed
over time, as has been found in other studies for the effectof distance (Yotov 2012) or trade agreements (de Sousa
2012).

Conclusion
The estimation results suggest that policies can have astatistically significant and economically sizable impact on
trade costs. Better shipping connectivity, better logistics
performance, less burdensome border and customs
procedures, and less trade policy uncertainty are associatedwith statistically significantly lower trade costs. Morechallenging shipping and logistics account for about onethird, and trade policy for another one-third, of thepredicted gap between trade costs in EMDEs andadvanced economies. Improved shipping and logistics also
account for about two-thirds of the predicted decline intrade costs since 2008.

(Staboulis et al. 2020).9 Burdensome regulations
have been associated with significantly lower
trade—almost as much as the average tariff, foreach additional signature to be collected forexports—especially for highly differentiated goods
where price comparisons are more challenging(Hillberry and Zhang 2015; Sadikov 2007). The
regression results suggest that a switch from thequartile furthest from the frontier in the Doing
Business ease of trading to the closest quartile—equivalent to a comparison between Sierra Leone
and Thailand—is associated with one-eight lower
trade costs.

9 This is consistent with studies that find that documentation
requirements are an important deterrent for trade flows in OECD
countries (Staboulis et al. 2020). For agricultural goods, regulations
that cause border delays are particularly damaging to trade (Djankov,
Freund, and Pham 2010). The Logistics Performance Index also
captures in part regulatory compliance burdens.

115

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FIGURE 3.4 Trade policy, border processes, andlogistics
Tariffs declined sharply over the 1990s and early 2000s, in part because ofregional and multilateral trade agreements, but began to tick upward again
in 2017, especially in EMDEs. They are higher in EMDEs than in advanced
economies and in agriculture than in manufacturing. Border processes andlogistics tend to be easier, and shipping connectivity better, in advanced
economies than in EMDEs.
A. Tariff rates in AEs and EMDEs

B. Tariff rates by different sectors

Percent
15

Percent
18

Advanced economies
EMDEs

Agriculture

Manufacturing

15

12

12

9

9

6

6

3

3
0
2019

1995

Advanced economies

2019

EMDEs

C. Trading across borders index

D. Logistics performance index

Distance to frontier
80

Score
4

E. Liner shipping connectivity index

F. Regional trade agreement
participation

Index, 100 = maximum in 2004
60

Number of RTAs

2004

2019

45

SAR

LAC

MNA

EAP

Advanced
economies

SSA

0

SAR

0

MNA

1

LAC

20

ECA

2

EAP

40

EMDEs

3

Advanced
economies

60

2007

ECA

2018

EMDEs

2006

2018

SSA

1995

2019

2017

2015

2013

2011

2009

2007

2005

2003

2001

1999

1997

1995

0

2000

2018

80

100

AEs
EMDEs
EAP

30

ECA

SSA

SAR

MNA

LAC

ECA

EAP

MNA

EMDEs

LAC

0

Advanced
economies

15

SAR
SSA
0

20

40

60

Sources: Gurevich and Herman (2018); World Bank; World Trade Organization.
Note: EMDEs = emerging market and developing economies; EAP = East Asia and Pacific, ECA =Europe and Central Asia, LAC = Latin America and the Caribbean, MNA = Middle East and North
Africa, SAR = South Asia, SSA = Sub-Saharan Africa; RTAs = regional trade agreements.
A.B. Regional aggregates are computed as unweighted averages of country weighted tariff rates.
C. Doing Business index for “trading across borders” indicator on a range from 0 = lowest
performance to 100 = best performance. Sample includes 82 EMDEs and 16 advanced economies
for 2006 and 2018. Bars show distance to frontier in 2006 and 2018.
D. Logistics performance index (LPI) is a summary indicator of logistics sector performance,
combining data on six core performance components into a single aggregate measure. The indicator
is available for a sample of 160 countries. Sample includes 36 advanced economies and123 EMDEs.
E. Liner shipping connectivity index (LSCI) is an average of five components and captures
how well countries are connected to global shipping networks. The index value 100 refers to thecountry with the highest average index in 2004. Sample includes 30 advanced economies and
119 EMDEs.
F. Regional trade agreements are reciprocal trade agreements between two or more partners
and include both free trade agreements and custom unions. The EU Treaty and the USMCA
agreement are included. Regional aggregates are computed as averages of individual country
participation in RTAs.

Regulatory costs in EMDE regions. Regulatory
requirements for trading across borders have beenstreamlined significantly over the past decade,especially in ECA, SAR, and SSA. In ECA and
SSA, the improvement appears to be linked toautomation and digitalization of trade processes ina number of countries, which has reduced thetime of compliance assessments at the location ofcustoms clearance. In SAR, the improvement
appears to be related to the upgrading of port
infrastructure in India, coupled with theintroduction of a new system of electronic
submission of imports documents. In EAP, better
governance and less burdensome customs
procedures have been associated with somewhat
lower trade costs.
Trade uncertainty. Uncertainty about, and highvariability of, transit conditions, customs andborder processes, tariffs, and other policies can
impose significant costs. Uncertainty about trade
policy may have lowered U.S. investment by morethan 1 percent in 2018 (Caldara et al. 2020).
Uncertainty also imposes significant costs bythreatening on-time delivery. In Africa, forexample, a single-day transit delay for an exporteris estimated to be equivalent to a 2 percent tariffin all importing partner countries (Freund andRocha 2011). One dimension of trade uncertainty
is the room for tariffs to be raised without
violating WTO rules, that is, the difference
between applied tariffs and bound tariffs, the“tariff water” (Osnago, Piermartini, and Rocha2015). The regression results here suggest that a
10-percentage point narrower gap between theactual applied tariff and the maximum (bound)tariff is associated with one-seventh lower trade
costs.
Differences between EMDEs and advanced
economies. In 2018, trade costs for the average
EMDE in the sample included in the regression
were almost one-quarter higher than for the
average advanced economy in the sample. The
panel estimation can explain most of this gap and,in turn, attributes about one-third of it to poorer
logistics and shipping connectivity in EMDEs,
one-third to trade policy (including trade policy
uncertainty), one-eighth to more cumbersome
customs regulations and border processes, and just

G LO BAL EC O NO MIC P ROS P EC TS | J U NE 2021

under one-fifth to the greater remoteness(geographically and culturally) of EMDEs.
Decline in goods trade costs over time. Between
2007 and 2018, trade costs have fallen by oneeighth, on average, in the countries in the sample,
somewhat more than predicted by the regression.
The regression attributes almost two-thirds of thisdecline to improved shipping connectivity andlogistics, one-quarter to trade policy (tariff cuts,
membership of regional trade agreements, anduncertainty related to trade policy) and one-tenth
to easier customs and border processes.
Other factors. Other factors, beyond what can be
captured in the empirical exercise used here, likely
also contribute to cross-country difference in trade
costs and their changes over time. Such factors
include nontariff barriers, market structures, butalso country-specific institutional and policy
characteristics including information availability
and automation of procedures and tradesupporting infrastructure beyond that included in
the logistics surveys.

CHAPTER 3

FIGURE 3.5 Trade costs in EMDEs, by country
characteristics
Trade costs are somewhat higher in EMDEs outside of regional trade
agreements, with the poorest logistics performance, the least maritime
connectivity, and the most challenging customs and border processes.

A. Trade costs, by regional trade
agreements

B. Trade costs, by quartile of logistics
performance index

Percent
400

Percent
200

300

150

200

100

100

50
0

0
Non-RTA•

Nontariff barriers—such as sanitary andphytosanitary standards, preshipment inspections, licensing requirements or quotas—haverisen over time. In 2015, about 2,850 productlines were subject to at least one nontariffbarrier, about double the 1,456 product lines
in 1997 (Niu et al. 2018). The averagenontariff barrier is equivalent to an 11.5
percent tariff (Kee and Nicita 2016).
Nontariff barriers affect a higher share ofimports—but a lower share of exports—inadvanced economies than in EMDEs. Almost
all agricultural imports face nontariff barriers,
compared with about 40 percent on average
across all sectors (World Bank and UNCTAD
2018). Low-income countries are particularly
affected by nontariff barriers because of theirmore frequent use of nontariff barriers in the
agricultural sector and the lower capacity offirms to comply with such requirements.
Export restrictions on sensitive sectors haveincreased in the pandemic. Policy makers haveadopted a wide range of measures to restrict
exports and encourage imports of food andmedical equipment, over concerns about food

Bottom

RTA

Top

C. Trade costs, by quartile of liner
shipping connectivity index

D. Trade costs, by quartile of trading
across borders index

Percent
200

Percent
200

150

150

100

100

50

50
0

0

•

117

Bottom

BottomTop

Top

E. Trade costs, by median WGI control
of corruption

F. Trade costs, by median WGIregulatory quality

Percent
250

Percent
250

200

200

150

150

100

100

50

50
0

0
Below

Above

Below

Above

Sources: Comtrade (database); Gurevich and Herman (2018); ESCAP-World Bank Trade Costs
Database; World Bank; World Trade Organization.
Note: EMDEs = emerging market and developing economies; RTA = regional trade agreements;
LSCI = Liner Shipping Connectivity Index; LPI = Logistics Performance Index. Whiskers show
minimum and maximum range. Orange wiskers indicate minimum and maximum range. Sample
includes 59 EMDEs.
A. Average trade costs (unweighted) of countries based on their membership in regional trade
agreements (RTAs) as defined in Gurevich and Herman (2018).
B. Average trade costs (unweighted) for countries ranked in the bottom and top quartile of the
Logistics Performance Index.
C. Bars show the average trade costs (unweighted) for countries in the bottom and top quartiles ofthe liner shipping index
D. Average trade costs (unweighted) for countries ranked in the bottom and upper quartiles of theDoing Business “trading across borders” indicator.
E.F. Average trade costs (unweighted) for countries above and below median of the “Control ofCorruption” and “Regulatory quality” of the World Governance Indicators (WGI). Control of corruption
captures perceptions of the extent to which public power is exercised for private gain, including bothpetty and grand forms of corruption, as well as "capture" of the state by elites and private interests.
Regulatory quality captures perceptions of the ability of the government to formulate and implementsound policies and regulations that permit and promote private sector development.

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existence of monopolies, including in transport industries, may raise high trade costs. In
some countries in Sub-Saharan Africa, forexample, the cost of moving goods domestically is up to five times higher than in the
United States (Atkin and Donaldson 2015;
Donaldson, Jinhage, and Verhoogen 2017).
This difference has in part been attributed to alack of competition (Teravaninthorn andRaballand 2008). Elsewhere, excessive competition can drive down the quality of transport
services quality, with high road mortality,
deteriorated roads, and poor vehicle quality.

FIGURE 3.6 Services trade restriction policies
Services trade in EMDEs face more restrictions than those in advanced
economies. Across regions, the most restrictive policies to services tradeare applied in South Asia and in East Asia and Pacific.

A. Services trade restriction inadvanced economies and EMDEs

B. Services trade restriction in EMDE
regions

Score, 1 = completely closed
0.6

Score, 1 = completely closed
0.6

0.4

0.4

0.2

0.2

SSA

SAR

0.0
LAC

EMDEs

ECA

Advanced
economies

EAP

0.0

•
Sources: Organisation for Economic Co-operation and Development; World Bank.
Note: EMDEs = emerging market and developing economies; EAP = East Asia and Pacific, ECA =Europe and Central Asia, LAC = Latin America and the Caribbean, SAR = South Asia, SSA = SubSaharan Africa.
Services trade restrictions index (STRI) helps identify which policy measures restrict trade. The STRI
indices take the value from 0 to 1, where 0 is completely open and 1 is completely closed. They arecalculated on the basis of information in the STRI database which reports regulation currently inforce. Bars show denote the unweighted average and orange whiskers indicate the interquartile
range. Sample includes 31 advanced economies and 17 EMDEs.

security and medical emergencies. In the firstnine months of 2020 alone, 135 economies
announced more than 600 such measures, ofwhich 44 percent without a removal date
(Evenett et al. 2020).
••

Better institutional quality and economic
infrastructure—including energy provision,transport and communication infrastructureand services, and greater transparency inpolicy decisions—have also been associatedwith lower trade costs (Cali and Te Velde
2011; Hou, Wang, and Xue 2021). In a large
sample of countries in the early 2000s, theavailability of trade-related information, thesimplification
andharmonizationof
documents, the streamlining of procedures
and the use of automated processes wereassociated with more than 10 percent lower
trade costs (Moïsé and Sorescu 2013). The
impact of corruption has been more
ambivalent: it may raise trade costs whencorrupt officials extort bribes or it may lower
trade costs when corrupt officials allow tariffevasion (Dutt and Traca 2010).
Noncompetitive market structures can drive up
trade costs. A lack of competition and theRegulatory restrictions on services trade can add
to trade costs, even for goods trade. To a large
extent, trade costs in the services sector reflect
regulations which create entry barriers, such as
licensing quotas. The OECD Service Trade
Restrictions Index (STRI) measures de jureregulatory restrictions on services trade ofdifferent types in 44 countries for 2014-19(figure 3.6). Like for goods trade, services
trade remains more restricted in EMDEs thanin advanced economies, especially with respect
to the entry of foreign firms. Across regions,the most restrictive policies are applied by
SAR and EAP, whereas countries in LAC tend
to be more open.

Policies to lower trade costs
Menu of policy options. The literature suggeststhat high trade costs remain a considerable
roadblock to trade. A menu of options is available
to reduce trade costs at the border, between
borders, and behind the border, as part of abroader package to return EMDEs to a green,
resilient and inclusive development path (GRID;
World Bank 2021d; OECD and WTO 2015).
Some of these policies are under the sole control ofcountry authorities (such as improving border andcustoms regulations and processes or facilitatingshipping and logistics) while other policy changes
require agreements with other country authorities(such as regional trade agreements). While somepolicies can be implemented quickly, others, suchas increasing competition, can take years to
pursue.

G LO BAL EC O NO MIC P ROS P EC TS | J U NE 2021

Countries engaged in regional trade agreements account for a large part ofglobal GDP and, for some agreements, member countries’ trade.
A. Share of major RTAs in global GDP
and trade

B. Intra-RTA trade

Percent
30

Percent of members' total trade
60

GDP

Trade

45

20

30
10

Beyond policies to facilitate trade, complementarypolicies might also be needed to assure that thebenefits are sustainable and widely shared.
At-the-border measures
Tariffs. Falling tariffs, often embedded in broader
trade agreements, have contributed to rapid trade
growth over the past three decades. However,tariffs have risen over the past five years as tradetensions mounted, raising concerns about aprotectionist turn among some major economies(World Bank 2021a).
Trade agreements. The decline in trade costs overthe past three decades has been supported by the
introduction of regional trade agreements. In
particular, the number of regional trade
agreements more than quintupled between theearly 1990s and the mid-2010s and these
agreements have, over time, shifted focus fromtariff cuts to lowering nontariff barriers (WorldBank 2016). The largest trade agreement by the
number of members, the African Continental Free
Trade Area, for example, has been estimated toraise real incomes in its member countries mostly
by lowering nontariff barriers to trade, rather thantariffs, and by implementing trade facilitation
measures (World Bank 2020c). The two regional
trade agreements in North America (USMCA)
and Europe (European Union) alone cover morethan 40 percent of global GDP (figure 3.7). Trade

SAPTA

Pacific
Alliance

CPTPP

AfCFTA

MERCOSUR

Pacific
Alliance

SAPTA

CPTPP

AfCFTA

MERCOSUR

RCEP

0

RCEP

15
ASEAN

0

EU

Measures that reduce trade costs behind theborder include trade-related regulations andinstitutions; logistics and broader market
governance; domestic transport infrastructure;market structure of domestic trucking andport operations; as well as nontariff barriers(e.g., standards and accreditation proceduresfor standards) and quotas.

USMCA

•

ASEAN

Measures that lower trade costs between
borders include global road, port, air, communications and energy infrastructure andservices networks.

FIGURE 3.7 Regional trade agreements

EU•

Measures that lower trade costs at the border
include trade facilitation (customs and borderprocedures) but also tariffs, and trade agreements.

USMCA

•

119

CHAPTER 3

Sources: Comtrade (database); World Bank; World Trade Organization.
Note: RTAs are reciprocal trade agreements between two or more partners and include both free
trade agreements and customs unions.
A.B. AfCFTA = African Continental Free Trade Area; ASEAN = Association of South East;
CPTPP = Comprehensive and Progressive Agreement for Trans-Pacific Partnership;
EU = European Union; MERCOSUR = Southern Common Market; RCEP = Regional Comprehensive
Economic Partnership; SAPTA = South Asian Preferential Trading Arrangement; USMCA = UnitedStates–Mexico–Canada Agreement.

agreements have fostered domestic reforms in
EMDEs and have generated their own
momentum for greater liberalization andexpansion (Baccini and Urpelainen 2014a, 2014b;
Baldwin and Jaimovich 2010).
Border processes. In addition to the direct costs oftariffs, a multitude of indirect costs are imposedby administrative border and customs procedures(Moïsé and Le Bris 2013). In the average EMDE,
it takes 56-67 hours to comply with border
documentation for exports and imports andanother 64-83 hours to comply with borderprocesses more broadly—significantly longer thanin the average advanced economy (figure 3.8). In
the average EMDE, these compliance costs are
two to four times those in the average advanced
economy.
Trade facilitation. The WTO Agreement on
Trade Facilitation (WTO TFA), which was
adopted in 2014 and has been ratified by morethan 90 percent of WTO members, provides aframework to streamline inefficient control andclearance procedures of border authorities,
unnecessary border formalities, and opaqueadministrative cost. Seventy percent ofcommitments included in the agreement havebeen implemented to date. For example, in West

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FIGURE 3.8 Customs and border procedures
Customs and borders procedures are considerably more burdensome in
EMDEs than in advanced economies but have declined over time in bothcountry groups.

A. Time to comply with importrequirements
Hours
100

Advanced economies

B. Trade facilitation index

EMDEs

Index, 2 = greatest trade faciliation
3.0

80

2.5

60

2.0

40

1.5

20

1.0

0

0.5
2015

2020

Documentation

2015

2020

Border0.0
Advanced economies

EMDEs

Sources: Organisation for Economic Co-operation and Development; World Bank.
Note: EMDEs = emerging market and developing economies.
A. Unweighted average for 39 advanced economies and 147 EMDEs.
B. Unweighted average for 36 advanced economies and 122 EMDEs. Trade facilitation index is an
unweighted average of 11 subindices, all scored on a scale of 0-2. The indices score countries on
information availability, trade consultations, advance rulings, appeals procedures for administrativedecisions by border agencies, fees and charges on imports and exports, simplicity of trade document
requirements, automation of border procedures and documentation, simplicity of border procedures,cooperation between domestic agencies, cooperation with neighboring agencies, and governanceand impartiality. The data is collected from publicly available sources, country submissions, andprivate sector feedback. Orange wiskers indicate minimum and maximum range.

control corruption and to encourage competition
can help lower transport costs. Policies thatstrengthen regional integration can also bebeneficial, particularly in the case of small
countries and these that are geographically isolated
from trade hubs. Coupled with regional
institutions that help thin borders, regional
infrastructures can enable countries to exploit thebenefits of regional and global trade networks(Deichmann and Gill 2008).
Lower search cost. That said, even in acompetitive, well-governed environment, efforts toimprove the match between trucking service
providers and shippers can help reduce trade costsby reducing wait times and empty backhauls. Suchefforts can, in particular, leverage information andcommunication infrastructure and services fortimely information about shipping capacity andschedules that allows exporters and shippers withavailable capacity to be matched more efficiently.
In addition, deeper regional trade agreements canalso lower transport-related trade costs (Brenton,
Portugal-Perez, and Regolo 2014).
Behind-the-border measures

Africa, an initiative is underway to cut trade costsby electronically sharing customs transit data
(World Bank 2021e). Guatemala and Honduras
have reduced the time for traders to cross theborder from 10 hours to 7 minutes by integrating
their trade procedures and replacing duplicative
processes with a single online instrument (deMoran 2018). Progress has been uneven, however,with less than 40 percent of commitments
implemented in low-income countries.
Between-the-border measures
Global connectivity and market structure. Highquality and well-maintained transport infrastructure—at ports, airports, on land and in thehinterland—and efficient global shipping services
lower logistics costs. Where bribes and transportmonopolies are common, they also drive up trade
costs. For example, in a pilot study of four Africancountries, responses from more than two-thirds ofsurvey respondents suggest that bribery toaccelerate transport services was common(Christie, Smith, and Conroy 2013). Efforts toRegulations and standards. Although notseparately included in the empirical exercise above
for lack of data, behind-the-border policies such as
regulations, standards, inspection requirements,and labelling requirements, can impose
considerable costs (Moïsé and Le Bris 2013). In
Central America, sanitary and phytosanitaryrequirements, such as inspection requirements orlabeling standards for meats and grains, have been
estimated to raise import prices by about 30
percent on average (OECD and WTO 2015).
Harmonization of standards can significantly
increase trade, but (smaller) gains can also be
achieved by mutual recognition of standards orconformity assessments (Chen and Mattoo 2008;
World Bank 2016).
Taxation. Beyond standards, a shift in taxation
away from trade-based taxation to income-basedor consumption-based taxation can further lower
barriers to trading. In middle- and high-income
EMDEs, such a shift has not been associated withlasting revenue losses, but such losses have

G LO BAL EC O NO MIC P ROS P EC TS | J U NE 2021

materialized in low-income countries (Baunsgaard
and Keen 2010).
Global value chain participation. High transport
costs, in part, reflect unbalanced trade flows since
shipping at full capacity in both directions of aroute is less costly than empty backhauls (Ishikawa
and Tarui 2018). At any one time, two-fifths ofships have been estimated to carry no cargo(Brancaccio, Kalouptsidi, and Papageorgiou
2020). Over the longer term, and in a favorable
business environment more broadly, increased
global value chain participation can expand thevolume of both exports and imports and thus help
lower shipping costs.
Comprehensive reform packages
Country examples of reforms. Some of the mostsuccessful reform programs have covered a wide
range of policies. In Cambodia, a combination ofcustoms and border improvements, regulatory
reform, and streamlined import and export
procedures helped the country to leap 46 rankings
on the Logistics Performance Indicators between
2010 and 2014 (World Bank 2018). In Africa’s
Great Lakes region, improved trade andcommercial infrastructure in the border areas andsimplified border crossing procedures have beencredited with greater accountability of officials,
declining rates of harassment at key borders (from78 percent to 45 percent of survey respondents inSouth Kivu), extended border opening hours,
increased trade flows, and a doubling of bordercrossings (World Bank 2021e).
Impact on trade cost of a hypothetical reform
package. The empirical results above can beapplied to a hypothetical comprehensive reform
scenario. In particular, one can focus on thosecountry pairs that average in the bottom quartileof the logistics performance index, the liner
shipping connectivity index, and the Doing
Business index for ease of trading. Three-quartersof these EMDEs are located in Sub-SaharanAfrica. The coefficient estimated from the panel
estimation suggest that an improvement in the
average logistics performance, shipping connectivity, and border processes among these country
pairs to the top quartile of the distribution of

CHAPTER 3

121

FIGURE 3.9 Impact of policy improvements on trade
costs
Better logistics, shipping connectivity, and border and customs processes
could help lower trade costs by one-half in the quartile of EMDEs thatscore worst on these indicators.
A. Reduction in overall trade costs
associated with policy improvements

B. Reduction in manufacturing trade
costs associated with policy
improvements

Fraction of trade costs
1.0

Fraction of trade costs
1.0

0.8

0.8

0.6

0.6

0.4

0.4

0.2

0.2

0.0
Betterlogistics

BetterborderBetter Comprehensive
shipping
reform0.0
Betterlogistics

BetterborderBetter Comprehensive
shipping
reformSource: World Bank.
Note: EMDEs = emerging market and developing economies.
A.B. Bars show the fraction of trade costs that would remain after policy improvements. Policy
improvements assume that the average EMDE in the quartile of EMDEs with the poorest score forliner shipping connectivity index (LSCI), logistics performance index (LPI) or Doing Business “trading
across borders” improves to match the score of the average EMDE in the quartile of EMDEs with thebest score for liner shipping connectivity index (LSCI), logistics performance index (LPI) or Doing
Business “trading across borders”. The comprehensive package assumes that all three scores are
improved simultaneously. Data refer to 2018. Gray line indicates 1 for unchanged trade costs in 2018
among the sample of EMDEs scoring in the poorest quartile on these indicators.

country pairs would halve their trade cost (figure
3.9).
Priority area for lowering trade costs: Medical
equipment. At the current juncture, to ensure thatthe current global recovery broadens to EMDEs,
one area in particular requires priority action tolower trade costs: medical equipment. Global
vaccine production is concentrated in a small
number of countries and these rely heavily on
supply chains that span the globe. During 201719, vaccine producing nations sourced 88 percentof their key vaccine ingredients from other vaccine
producing trading partners (Evenett et al. 2021).
Export bans and other restrictions, such as those
newly introduced on medical equipment in 20202021 in 80 countries and of which more than half
are still in place, threaten to disrupt vaccine
production globally (Global Trade Alert 2020;
WTO 2020). To bring the pandemic undercontrol, removing obstacles to trade in medical
equipment is a priority.
Reforms to lower services trade costs. As
manufacturers access services to produce andexport goods, policies aimed at lowering trade

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CHAPTER 3

costs in the services sector can help lower costs oftrading goods. Opening services markets to morecompetition remains important for reducing trade
costs, including in road and rail transport services
and shipping. Liberal bilateral air services
agreements can help lower trade costs for many
goods that form part of global value chains or highvalue-added agricultural goods.
Reforms for improved agricultural trade. Due totheir perishable nature, measures that accelerate
the movement of agricultural traded goods are
particularly important (USAID 2019). The WTO
TFA includes several provisions aimed at making
agricultural trade faster and more predictable, suchas simplified and more efficient requirements
regarding risk-based document verifications,
physical inspections, and laboratory testing. In a
Single Window, a single authority can reduce theamount of redundant and duplicated paperwork
by processing all documents and coordinatingwith other relevant agencies to (UNESCAP 2011).
Improved storage facilities can reduce spoilage andlosses in perishable agricultural goods (UNESCAP
2017; Webber and Labaste 2010). Tracking andmonitoring technologies can help accelerate
paperwork and monitor environmental conditions(Beghin and Schweizer 2020). Such measures tolower agricultural trade costs can also help address
prevent or reduce food insecurity.
Reforms to mitigate environmental anddistributional impacts. A comprehensive package
would also take into account the potential
environmental degradation and distributional
consequences that have been associated with trade.
•

Distributional impacts. The failure of somefirms participating in global value chains topass costs reductions on to consumers and thedeclining share of labor income in countries
integrated in global value chains havecontributed to the perception of unequallyshared gains from trade (World Bank 2020a).
Conversely, growing services trade, global
supply chains and digitalization have offered
new economic opportunities to women(World Bank and WTO 2020). Goingforward, labor market policies that can help
share gains from global value chain
participation more broadly include policies to

G LO BAL EC O NO MIC P ROS P EC TS | J U NE 2021

facilitate labor mobility with active labormarket programs and wage insurance schemes(World Bank 2020b).
•

Environmental impacts. In some countries,
entry into global value chains in manufacturing has been accompanied by greater
carbon dioxide emissions and global value
chains have contributed to greater waste andincreased shipping (World Bank 2020a).
Shipping accounts for 7 percent of global
carbon dioxide emissions and 15 percent of
global sulfur dioxide and nitrogen oxides(World Bank 2020a). Being heavily concentrated in the electronics sector, global value
chains have also contributed to e-waste which
accounts for more than 70 percent of toxic
waste in U.S. landfills (World Bank 2020a).
Policies, such as eco-friendly industrial parks
and community-based tourism, can encourage
environmentally friendlier business practices(World Bank 2020b). Measures that priceenvironmental degradation can help improve
resource allocation while reducing CO2
emissions (World Bank 2020b).

Leveraging digital technologies. Digital technologies may eventually lower trade costs behindthe border, at the border, and between borders,
including by improving transparency and pricediscovery as well as the information flow between
exporters, shippers, and country authorities.10 This
may particularly support global supply chains.
Robotics can help accelerate port procedures.
Artificial intelligence can help lower logistics costsby optimizing route planning, storage andinventory, as well as improving tracking andmonitoring; 3D printing can help shorten supply
chains and localize supply chains, thus reducing
the environmental footprint of trade; blockchain
technology can help reduce time spent in customs,
especially for time-sensitive goods, facilitate crossborder payments by increasing transparency andcredibility, and enhance information sharing
within supply chains (Fan, Weitz, and Lam 2019;10 Conversely, greater digitization in cross-border trade will create
its own challenges, including to enforce value added tax payments if
digitization makes ever smaller payment transactions profitable(World Bank 2021c).

G LO BAL EC O NO MIC P ROS P EC TS | J U NE 2021

WTO 2018). Such technologies may disproportionately benefit small and medium-sizedenterprises that currently face larger trade costs
than large enterprises.

Conclusion
Despite a decline over the past two decades, trade
costs are high. In EMDEs, they amount to theequivalent of a 100 percent tariff, i.e., they double
the price of a traded good over a similar domestic
good. Trade costs are on average about four-fifths
high on agricultural goods as on manufacturing
goods and almost one-half higher in EMDEs thanin advanced economies.
Trade costs have a wide range of sources. The bulkof these costs are caused by transport and domestic
market conditions as well as regulatory andadministrative practices; tariffs account for only
about one-fourteenth of trade costs. In fact, about

CHAPTER 3

one-third of the difference in trade costs between
EMDEs and advanced economies reflects theeffects of impediments to logistics and shipping,
and another one-third trade policy, incuding trade
policy uncertainty.
Comprehensive packages of reforms have often
been successful in reducing trade costs. Such a
package can include trade facilitation measures aswell as agreements for deeper trade integration andcoordinated efforts to streamline trade proceduresand processes at and behind the border, improved
domestic infrastructure, increased competitivenessin shipping and logistics, reduced corruption,
simplified
trade-related
procedures
andregulations, and easier compliance with standards.
Many of these reforms, especially those relating to
the business climate and governance, would
stimulate private, trade-intensive investment andoutput growth more broadly.

TABLE 3.1 Data employed in the panel regression
Data

Definition

SourceTrade costs

Logarithm of the geometric average of country i's and j's bilateral trade costs

UNESCAP-WB Trade
Costs Database

Tariff rates

Logarithm of the geometric average of country i's and j's bilateral tariff rates

UNESCAP-WB Trade
Costs Database

Regional trade agreement (RTA)

Dummy variable equal to unity if countries i and j share a common RTA

CEPII

Common border

Dummy variable equal to unity if countries i and j share a common land border(adjacency).

CEPII

Common language

Dummy variable equal to unity if countries i and j share a common language

CEPII

Distance

Logarithm

CEPII

Logistic Performance Index

Logarithm of the geometric average of country i's and j's scoresWorld Bank

Liner Shipping Connectivity Index

Logarithm of the geometric average of country i's and j's scoresWorld Bank

Ease of doing business. Trading
across borders score

Logarithm of the geometric average of country i's and j's score indicators

WB Doing Business
Database

Proxy of trade policy uncertainty

Logarithm of the geometric average of the country i's and j's gap between
bounded and applied tariff rates

World Development
Indicators Database

Source: World Bank.

123

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G LO BAL EC O NO MIC P ROS P EC TS | J U NE 2021

TABLE 3.2 Panel regression results
All sectors

Manufacturing sector

Liner Shipping Connectivity Index-0.2329***(0.007)-0.2281**(0.007)

Logistics Performance Index-0.3708***(0.334)-0.3849***(0.036)Ease of trading-0.1993***(0.014)-0.1983***(0.166)

Tariffs

0.2897***(0.042)0.3495***(0.053)

Manufacturing tariffs
Regional trade agreement membership-0.0485***(0.056)-0.0535***(0.007)

Trade policy uncertainty

0.0783(0.048)0.0748(0.005)Distance

0.2533***(0.069)0.2630***(0.007)

Common border-0.4197***(0.034)-0.4222***(0.036)

Common language-0.1660***(0.013)-0.1745***(0.014)

Sample50,37049,754R2

0.536560.5646

Source: World Bank.
Note: * p<0.05, ** p<0.01, ***p<0.001, robust standard errors are shown in parenthesis. The table shows estimated coefficients from a gravity panel regression estimated for 86 countries
using annual data for 2007-2018 where the dependent variable is the log of bilateral trade costs. The regression includes time fixed effects. Standard errors are clustered by country pairs.

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CHAPTER 4

EMERGING
INFLATION PRESSURES
Cause for Alarm?

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131

After declining in the first half of 2020, global inflation has rebounded quickly on recovering activity. While global inflation
is likely to continue rising in the remainder of this year, inflation is expected to remain within target bands in mostinflation-targeting countries. Among emerging market and developing economies (EMDEs) where recent price pressures may
raise inflation above those economies’ target ranges, such pressures may not warrant a monetary policy response—provided
they are temporary and inflation expectations remain well-anchored. However, higher inflation may complicate the policy
choices of EMDEs that are in danger of persistently breaching their inflation targets while also relying on expansionary
policies to ensure a durable recovery. Measures to strengthen central bank credibility can help anchor inflation expectations inthese economies. Unless risks from record-high debt are addressed, EMDEs remain vulnerable to financial market stressshould investor risk sentiment deteriorate as a result of actual or perceived inflation pressures in advanced economies. Lowincome countries are likely to experience rising aggregate and food price inflation in the remainder of this year, exacerbating
food insecurity and threatening to increase poverty. Attempts to control food prices through price subsidies in many countries,or the re-emergence of protectionist policies could drive global prices higher and prove to be self-defeating.

Introduction

FIGURE 4.1 Price trends
Firms report rising input as well as output prices.

The COVID-19 pandemic plunged the global
economy into its deepest recession since theSecond World War (World Bank 2020a; 2021a).
Amid a collapse in demand and plunging oil
prices, global consumer price inflation declined by
0.9 percentage point between January and May
2020, and this decline was about one-third more
pronounced in inflation in advanced economies
than in EMDEs.
Since May 2020, however, inflation has gradually
picked up. By April 2021, inflation had risen
above pre-pandemic levels, in both advanced
economies and EMDEs. The inflation pickup was
broad-based and present in about four-fifths ofcountries, although the change in inflation varied
widely, especially in EMDEs.
The 2020 global recession featured the most
muted inflation decline and fastest subsequent
inflation upturn of the five global recession
episodes of the past 50 years (box 4.1). While thisbehavior partly reflects lower levels of inflation at
the beginning of 2020, purchasing managers
report growing pressures on input as well as
output prices in 2021 (figure 4.1). Looking ahead,as the global economy gradually reopens,monetary and fiscal policies continue to beaccommodative to support the global recovery,
and pent-up demand may be about to be

Note: This chapter was prepared by Jongrim Ha, M. Ayhan Kose,
and Franziska Ohnsorge.

A. Composite PMI: Output prices

B. Composite PMI: Input prices

Index, >50=Expansion

Index, >50=Expansion

60

Advanced economies

EMDEs

70

Advanced economies

EMDEs

65

55

60
50

55

45

50
45

40

40
35
30
Jan-2035
May-20

Sep-20Jan-21

30
Jan-20May-20

Sep-20Jan-21

Sources: Haver Analytics; World Bank.
Note: Subcomponent of composite purchasing managers index (PMI) for emerging markets(“EMDEs”) and developed markets (“Advanced economies”) for output prices and input prices. An
index above 50 indicates price increases.

unleashed in advanced economies.1 For majoradvanced economies, some have raised concernsthat this confluence of factors may generatesignificant inflationary pressures (Blanchard andPisani-Ferry 2020; Goodhart and Pradhan 2020;
Landau 2021). Others, in contrast, see little reason
for concern, at least for many advanced
economies, because of the temporary nature ofprice pressures over the short-term as well as wellanchored inflation expectations and structural

1 In the United States, CPI inﬂation has risen steadily since May
2020 to 4.2 percent in April 2021. In the euro area, inﬂation has
risen since November 2020 and is now near the 2 percent target.
Reﬂecting the recent inﬂation developments, short-term inﬂation
expectations have also risen. In the United States, inﬂation
expectations for 2021 are now at 2.8 percent, and in the euro area,
they have risen to 1.7 percent with the inﬂation expectations above 2
percent in some economies (Czech Republic, Germany, andNorway). Medium-term inﬂation expectations, however, remainanchored around 2 percent.

132

CHAPTER 4

factors still depressing inflation (Ball et al. 2021;
Gopinath 2021).
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. This could trigger a significant risein risk premia and borrowing costs. EMDEs are
particularly vulnerable to such financial market
disruptions because of their record high debt and alagging economic recovery from the pandemic(chapter 1). In the event of financial market stress,
sharp exchange rate depreciations and capitaloutflows may force them to abruptly tighten
policies in a manner that could throttle theirrecoveries.
Even in the absence of dislocating financial market
stress, EMDEs may face rising inflation as global
price pressures feed into domestic inflation
through input prices and exchange rate movements. A temporary increase in inflation may not
warrant a monetary policy response. Again, if
rapidly rising price pressures risk de-anchoring
inflation expectations, EMDE central banks may
be forced to tighten monetary policy before therecovery is fully entrenched.
Persistently higher inflation would erode
discretionary incomes of the poorest households
and may tip some back into poverty (Ha, Kose,
and Ohnsorge 2019). This is a particularly serious
risk for low-income countries (LICs; box 4.2).
Since food accounts for a substantial share of
consumption in these countries, recent increase infood prices have led to higher inflation andcompounded the challenges confronting the poor
during the pandemic.
Against this background, this chapter first briefly
examines the evolution of global inflation over the
past five decades and then asks the following
questions:•

What have been the main drivers of recent
developments in global inflation?

•

How does the evolution of inflation during
the 2020 global recession compare with thatin earlier global recessions?

G LO BAL EC O NO MIC P ROS P EC TS | J U NE 2021•

What are prospects for global inflation?

•

What are the policy implications of higher
inflation for EMDEs?

The chapter contributes to the literature in four
dimensions. First, it expands on existing studies by
putting recent inflation developments into ahistorical context, drawing on a large inflation
database that spans more than 80 countries andmultiple inflation measures. It is the first study tocompare the evolution of inflation during the2020 global recession with those during previous
global recessions. Second, it analyzes the driving
forces of global inflation focusing on the 2020
global recession. To this end, it employs two
approaches: a factor-augmented vector autoregression (FAVAR) model of global variables
with a novel identification strategy, and an event
study of global inflation around global recessions.
Third, based on the discussion of various factorsthat determine inflation dynamics, and modelbased conditional forecast, it examines prospects
for inflation. Fourth, it discusses the policy
implications of potentially growing inflationarypressures for EMDEs, including LICs. For the
purposes of this chapter, inflation refers to yearon-year percent changes in headline consumer
price index (CPI) inflation, but other inflation
measures are also examined.
The main findings of the chapter are the following(figure 4.2).
•

Shorter-lived decline but faster increase ininflation. The decline in inflation during the2020 global recession was the most mutedand shortest-lived of any of the five global
recessions over the past 50 years. Similarly,
the increase in inflation since May 2020, amida rebound in oil prices and global demand has
been faster than after previous recessions,
including after the 2009 global recession.

•

Dominant role of global demand in driving
inflation. The decline in global inflation fromJanuary-May 2020 was four-fifths driven by
the collapse in global demand and anotherone-fifth driven by plunging oil prices, withsome offsetting inflationary pressures fromsupply disruptions. This contrasts with theG LO BAL EC O NO MIC P ROS P EC TS | J U NE 2021••

Low and stable inflation over the long term. For
now, long-term expectations point tocontinued low and stable inflation. However,
several structural forces (demographic changes,
global supply chains) that have depressed
inflation over the past five decades are
beginning to fade amid trade tensions,
population aging, and investment andproductivity weakness. As they recede,
increases in short-term inflation may become
more persistent and, thus, threaten theanchoring of long-term inflation expectations.
More pronounced challenges in LICs. Inflation
challenges are larger for LICs, partly becauseof pressures on food prices. In contrast toother EMDEs, inflation in LICs increased
with the outbreak of COVID-19, largely as aresult of food price increases. In the nearterm, further rises in global agricultural prices
are likely to add to inflationary pressures in

A. CPI headline inflation, monthly
Percent
54B. CPI headline inflation, annual

GlobalAdvanced economies
EMDEs

Percent

Global20

Advanced economies

16

EMDEs

3

12

2

8

1

4

0

C. Contributions to monthly change inglobal headline CPI inflation: 2020-21

D. Global inflation in 2008-10 and2020-21

Percentage point
0.5

Percent
16
14
12
10
8
6
4
2
0
-2
-12 -8

0.0
-0.5

Oil

SupplyDemandInflation

-1.0

2020

2021

E. Model-based conditional forecast
for global inflation
Percent
8

2009

-4

0

4

2020

2015

2010

2005

2000

1995

1990

1985

1980

0

-1
Jan-20 Apr-20 Jul-20 Oct-20 Jan-21 Apr-21

1975

Higher inflation in 2021 but stable short-term
inflation expectations. Model-based forecasts
and current inflation expectations point to anincrease in global inflation for 2021 as awhole of just over 1 percentage point. For
virtually all advanced economies and one-halfof inflation-targeting EMDEs, an increase ofthis magnitude would leave inflation withintarget ranges. However, for another one-halfof inflation-targeting EMDEs, it would raise
inflation above target ranges. If this increase istemporary and inflation expectations remain
well-anchored, this may not warrant amonetary policy response. If, however,inflation expectations risk becoming unanchored, EMDE central banks may becompelled to tighten monetary policy morethan would be appropriate for theireconomies’ recoveries.

Following a modest decline during January-May 2020, global inflation has
rebounded quickly. The inflation decline in early 2020 was more muted
than after the 2007-09 global financial crisis, and it was also shorter-lived inpart because of a faster recovery in global demand. Global inflation has
declined and been low for several decades. Model-based forecasts are
consistent with an inflation uptick in 2021 by just over 1 percentage point
but this uptick may be short-lived. Long-term inflation expectations remainbroadly unchanged.

1970

•

FIGURE 4.2 Inflationary pressures

Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
Jan
Feb

2009 global recession in which the 13-monthdecline in global inflation that was three-fifths
driven by plunging oil prices and only onethird driven by the contraction in global
demand. In their rebounds, however, inflation
developments after the end of two global
recessions resembled each other: both werevirtually entirely driven by sharp increases in
global demand.

133

CHAPTER 4

2020

8

12 16 20 24

F. Inflation expectations: Five year
ahead
Percent
5

6

4

4

3

GlobalEMDEs
Advanced economics

2

2

1
0
Pre-pandemic(2010-19)

2020

2021f

0
2019Q1 2019Q3 2020Q1 2020Q3 2021Q1

Sources: Haver Analytics; Consensus Economics; IMF World Economic Outlook; World Bank.
Note: Year-on-year inflation for 81 countries, of which 31 are advanced economies and 50 are
EMDEs.
A. Median of year-on-year headline consumer price index (CPI) inflation in a sample of 81 countries.
B. Median of annual average headline CPI inflation in a sample of 155 countries.
C. Contributions to change in year-on-year headline consumer price inflation from the previous monthfor 81 countries, of which 31 are advanced economies and 50 are EMDEs, based on FAVAR
estimation in annex 4.1. Monthly data. Unexplained residual is omitted from the graph.
D. Blue and red lines are medians, dotted lines are interquartile ranges. t=0 is September 2008 for2009 and January 2020 for 2020.
E. Conditional forecast of global inflation based on quarterly FAVAR model of global inflation, global
GDP growth, and oil price growth. Vertical line indicates 16-84 confidence bands. See annex 4.1 fordetails.
F. Median five-year-ahead consensus inflation expectations among 24 advanced economies and 23
EMDEs.

134

CHAPTER 4

LICs. This, and potential pressures to financelarge fiscal deficits can risk ingraining higher
rates of inflation into expectations. Attempts
to suppress food price inflation through pricesubsidies in many countries, or the reemergence of protectionist policies, could
drive global prices higher and prove to be selfdefeating.

Global inflation before thepandemic
Inflation has been declining around the world
over the past half century. Global inflation fell
from 16.9 percent in 1974 to 2.3 percent in 2019,up from its lowest point on record of 1.8 percent
in 2015 after a long slide in oil prices (figure 4.3).2
In EMDEs, inflation declined from a peak of 17.5
percent in 1974 to 2.9 percent in 2019. In LICs,
inflation fell from 25.2 percent in 1994 to 3.5
percent in 2019. The trend decline started earlier(in the mid-1980s) in advanced economies than in
EMDEs and LICs (in the mid-1990s).
In EMDEs, this disinflation process cut across all
regions, including those with a history of
persistently high inflation, such as Latin America
and the Caribbean and Sub-Saharan Africa. The
downward trend was evident in all inflation
measures, including headline CPI, core CPI, PPI,and GDP deflator inflation. By the early 2000s,
the disinflation was largely completed, although it
resumed after the global financial crisis at a milder
pace.
The widely shared disinflation in advanced
economies has been attributed partly to changes inmonetary policy regimes, including the increased
focus on price stability, which took hold during
the early 1980s (Cecchetti et al. 2007; Levin andPiger 2004). Other factors may have included
sounder fiscal policies, deregulation, globalization,
growing global labor forces, and, in the 1990s,
accelerating productivity growth in parts of theworld (Goodhart and Pradhan 2020; Rogoff2003).

2 Comparisons in this historical section are based on annual dataof 155 countries.

G LO BAL EC O NO MIC P ROS P EC TS | J U NE 2021

In EMDEs, the introduction of inflation
targeting, improvements in fiscal balances (prior
to the 2007-09 financial crisis), greater exchange
rate flexibility and macroeconomic stabilization
programs helped lower inflation (Aizenman,
Chinn, and Ito 2008; Mishkin and SchmidtHebbel 2007). Notwithstanding a pickup in thepast 15 years, inflation expectations in EMDEs
have become better-anchored and less responsive
to inflation surprises (Kose et al. 2019).

Inflation during the
pandemic
Between January and May 2020, amid a collapse
in demand and plunging oil prices, global
inflation ticked down by 0.9 percentage point,and EMDE and advanced-economy inflation by
1.2 and 1.6 percentage point, respectively (figure4.4). A surge in global and EMDE food inflation
during January-April 2020 was more than offset
by a collapse in oil prices (Dunn, Hood, andDriessen 2020; Shapiro 2020).
Starting in May 2020, however, inflation began topick up, although it has remained low byhistorical standards. By April 2021, inflation hadrisen 0.3-0.6 percentage point above prepandemic levels, in both advanced economies and
EMDEs. The initial surge in global food prices,the plunge in global oil prices, and the decline inglobal core inflation have also been unwoundsince May 2020. The magnitudes of the inflation
pickup, however, varied, especially in EMDEs
where the interquartile range of inflation widenedby 1 percentage point between May 2020 andMarch 2021 before narrowing again in April 2021
as the inflation pickup broadened.
The decline in inflation during January-May 2020
followed by a rebound that was broad-based acrosscountries, EMDE regions, and inflation measures.
In almost three-quarters of countries, inflation
declined between January-May 2020 but rose
thereafter.3 Although EMDE core inflation re-

3 The pattern of inﬂation decline followed by a rebound to nearpre-pandemic levels was seen in all EMDE regions except in East Asia
and Paciﬁc (EAP), although the decline was somewhat delayed in
Middle East and North Africa (MNA) and Sub-Saharan Africa (SSA),
in part because of rising food price inﬂation.

G LO BAL EC O NO MIC P ROS P EC TS | J U NE 2021•

Oil price collapse. Between late-January andmid-April 2020, amid the pandemic-induced
global recession, oil prices plunged by morethan 60 percent as lockdowns disrupted thetransport and travel that accounts for twothirds of global energy consumption (Kabundi
and Ohnsorge 2020; Wheeler et al. 2020).

Percent
25
20
15
10
5
0

EAP

ECA

LAC

MNA

SAR

SSA

C. Core, food, and energy CPI inflation

D. Sectoral contribution to headline
CPI inflation: 2019-20

Percent
25

Percent
6

Core

Food

Energy20

4

1998-2020

1970-1997

1998-2020

1970-1997

2020

2015

2010

2005

2000

1995

1990

1985

1980

1975

0

1998-20204

1970-19978

1998-2020

12Median 1998-2020

1970-1997

EMDEs

1998-2020

16

Median 1970-1997

1970-1997

Advanced economies

1998-2020

Global1970-1997

Percent
20

Food
Other goods
Service

15
2

10
5

0
2019

2020

2015

2010

2005

2000

1995

1990

0

1985

Plunge in aggregate demand. Lockdowns andweaker consumer confidence triggered acollapse in demand (Dunn, Hood, andDriessen 2020). Reflecting the sharp declines
in aggregate demand, global trade alsoplunged. Uncertainty about the spread of thepandemic, future economic conditions, andpolicy responses deterred private consumption
and investments (Caggiano, Castelnuovo, andKima 2020; Leduc and Liu 2020a). Wages
declinedin
responsetohigherunemployment: In the median country(among 44 countries), wages declined 5.4
percent (annualized) during the first half of2020 and rebounded to pre-crisis levels inmany countries in the second half. Global
economic activity reached its trough in mid2020 and subsequently recovered, supported
by unprecedented policy measures. With therecovery in demand, accompanied by a shift
from in-person to online purchases, retail sales
bounced back, global trade rebounded, anddemand for energy strengthened from mid2020.

B. EMDE inflation, by region

1980

•

A. Headline CPI inflation, by country
group

1970

Plunges in aggregate demand, oil price declines,
and supply disruptions contributed to global
inflation developments in 2020. For EMDEs,
global shocks were in part channeled into
domestic inflation rates through exchange rate
movements, compounding the effect of domestic
supply shocks as lockdowns disrupted services
activity and food supply chains.

Since its peak in the mid-1970s, global inflation has been declining. The
decline began in the mid-1980s among advanced economies before
moving to EMDEs in the mid-1990s. This disinflation process cut across all
EMDE regions and manifested in all inflation measures. During the COVID19 pandemic, inflation in service and non-food goods sectors were
subdued, while food inflation has increased.

1975

Drivers of inflation during
the pandemic

FIGURE 4.3 Global inflation

1970

mained broadly stable, global core inflation
declined by 0.6 percentage point during JanuaryJune 2020 before rising to within 0.2 percentage
point of its pre-pandemic (January 2020) level.

135

CHAPTER 4

-2

2020

Advanced
economies

2019

2020

Non-LIC
EMDEs

2019

2020

LICs

Sources: Havers Analytics; International Monetary Fund; World Bank.
Note: CPI = consumer price index; EMDEs = emerging market and developing economies.; LICs= low
income countries. Cross-country medians unless otherwise specified.
A.-C. Based on a sample of 155 countries (30 advanced economies and 125 EMDEs). The values
show headline CPI inflation or its sub-components.
B. EAP = East Asia and Pacific; ECA = Europe and Central Asia; LAC = Latin America and the
Caribbean; MNA = Middle East and North Africa; SAR = South Asia; SSA = Sub-Saharan Africa.
D. Median headline CPI inflation (annual averages) in 12 sectors across 147 countries. Sectors are
categorized following International Financial Statistics. Food indicates food and nonalcoholic
beverages and alcoholic beverages, tobacco, and narcotics sectors. Other goods include clothing andfootwear, housing, water, electricity, gas and other fuels, furnishings, household equipment androutine household maintenance sectors. Service sector includes health, transportation,communication, recreation, education, restaurants, and miscellaneous sectors.

For oil-importing countries and manufacturing, this lowered the cost of a critical input
into economic activity. For oil-exporting
countries, it reduced export and fiscal revenues and, in some, compelled authorities tocurtail government spending. Oil prices
recovered from May onwards and are now
near their pre-pandemic level.
•

Supply disruptions. Especially early in the
pandemic, lockdowns disrupted economic
activity. Services sector activity was sharply

136

CHAPTER 4

G LO BAL EC O NO MIC P ROS P EC TS | J U NE 2021

FIGURE 4.4 Inflation during the pandemic•

Currency movements. Larger depreciations
during the pandemic, especially during thefinancial market stress and capital outflows ofMarch and April 2020, were a key source of
inflationary pressures in EMDEs (Banerjee etal. 2020). During the first half of 2020,
currencies depreciated against the U.S. dollar
by 10 percent or more in one-third of
EMDEs before recouping some of their losses
in the second half of 2020 (chapter 1). Onefifth of EMDEs ended 2020 with weakerexchange rates than at the start of the year.
These depreciations fed into inflation: In
EMDEs, a 10 percent depreciation has been
estimated to raise consumer prices by about 1
percent over the following year (Ha, Stocker,
and Yilmazkuday 2020). The strength of theexchange rate pass-through to inflation isparticularly high in EMDEs when it is caused
by global or domestic demand shocks ordomestic supply shocks. Indeed, in EMDEs
with 10 percent or higher currency
depreciation, median inflation was 6.8 percent
in 2020, about 3 percentage point higher thanin other EMDEs.

•

Food price volatility. In some countries, supply
disruptions, such as market and trade restrictions or curfews, appear to have affected
domestic food supply chains, increasing
wholesale and retail markups, and contributed
to rising food price inflation (Husain et al.
2020; Swinnen and McDermott 2020).4 Foodprice increases have been higher in countries
with larger currency depreciations that raised
prices of imported foods. Food supply
instability during the pandemic has coincidedwith episodes of internal conflict in some
EMDEs (Ide 2021). Food price increases havebeen particularly pronounced (2-3 percentage
points above the median EMDE) in EMDEs
with a history of higher food price inflation
over the past decade (in particular in SouthAsia, and Sub-Saharan Africa) and in lowincome countries (box 4.2).

Global, advanced-economy and EMDE inflation slowed between January
and May 2020 but then began to rebound. By April 2021, inflation had
rebounded above pre-pandemic levels in both advanced economies and
EMDEs, while inflation in the largest economies (the drivers of weighted
average global inflation) was still somewhat below pre-pandemic levels.

A. Inflation, by country group
Percent

GlobalAdvanced economies
EMDEs

5
4

B. Global inflation, by measure
Percent

Median4

Weighted average
Unweighted average

3

3
2

2

1
1

0
-1
Jan-20 Apr-20 Jul-20 Oct-20 Jan-21 Apr-21

0
Jan-20 Apr-20 Jul-20 Oct-20 Jan-21 Apr-21

C. EMDE inflation, by measure

D. Global headline CPI, core CPI, and
PPI inflation

Percent

Percent
6

MedianWeighted average
Unweighted average

6
5

4

4

2

3

PPI

Headline CPI

Core CPI

0

2
-2

1
0
Jan-20 Apr-20 Jul-20 Oct-20 Jan-21 Apr-21-4
Jan-20 Apr-20 Jul-20 Oct-20 Jan-21 Apr-21

E. Global headline, food, and core
inflation

F. EMDE headline, food, and core
inflation

Percent

Food

Headline

Core

Percent

Food

Headline

Core

6

6

4

4

2

2

0
Jan-20 Apr-20 Jul-20 Oct-20 Jan-21 Apr-21

0
Jan-20 Apr-20 Jul-20 Oct-20 Jan-21 Apr-21

Sources: Haver Analytics; World Bank.
Note: CPI = consumer price index; PPI = producer price index. Year-on-year inflation for 81 countries,of which 31 are advanced economies and 50 are EMDEs.
A. Group medians.
B.C. Weighted average uses 2020 real GDP weights (at 2010 prices and exchange rates).
D.-.F. Year-on-year consumer price inflation for 81 countries, of which 31 are advanced economies
and 50 are EMDEs. PPI inflation for 97 countries. Monthly data. Group medians.

curtailed as restrictions were imposed ontransactions that required in-person interaction. In some countries, restrictions on
international travel complicated migration ofagricultural workers and lockdowns ofmarkets disrupted the sale of produce (WorldBank 2020a, 2020c, 2021b).

4 Using event studies, Ebrahimy, Igan, and Peria (2020) ﬁnd thatpast epidemics, wars, and other disasters coincided with inﬂation
increases, mainly driven by changes in food prices, although theincrease was short-lived.

G LO BAL EC O NO MIC P ROS P EC TS | J U NE 2021

CHAPTER 4

BOX 4.1 Inflation during global recessions
Some of the sharpest inflation movements over the past half century occurred around global recessions. During these episodes,
inflation typically declined for several months, driven by the coincidence of several shocks, before recovering to a lower level than
before the global recession. The 2020 global recession featured the most muted inflation decline and fastest subsequent inflation
upturn among the five global recessions episodes over the past 50 years.

Introduction

Evolution of inflation during global recessions

Global inflation has steadily trended down since 1970.
However, there were several notable departures from thisdownward trend associated with global recessions. During
global recessions, global output collapsed, and oil prices
plunged, thus lowering inflation (Baffes et al. 2015; Kose
and Terrones 2015; Wheeler et al. 2020). Along thesubsequent recovery path, some global recessions were
followed by lasting supply weakness that compounded theinflationary pressures associated with the demand rebound.
Against this backdrop, this box examines the following
questions.

Global recessions set off a decline in global inflation thatlasted several quarters beyond the trough of the recession
and well into the recoveries (figure B4.1.1). Global
inflation declined by a cumulative 6.2 percentage points,
on average, between the trough of the global recession andthe subsequent trough of global inflation. The global
recession in 2009 was accompanied by a somewhat
shallower (5.1 percentage point, peak to trough) andshorter-lived inflation decline, in part reflecting lower
inflation at the start of the recession. Four quarters after
the trough of the 2009 global recession, global inflation
began to pick up. This pickup was delayed by another 1-2
years after the 1991 and 1975 global recessions and by five
more years in the 1982 global recession. After all global
recessions other than 1991, global inflation subsequently
stabilized at a lower rate than before the global recession,
returning to a path of long-term trend disinflation.

•

How did inflation evolve during global recessions?

•

What were the drivers of inflation during global
recessions?

For the purposes of this box, global inflation is defined as
the cross-country median of quarterly inflation rates of 25
advanced economies and 51 EMDEs during 1970-2020.
To remove one-off factors, the four-quarter moving
average of quarter-on-quarter annualized inflation is used
as a proxy for trend inflation.a The analysis is restricted to
CPI inflation for lack of a sufficiently large country sample
for other inflation measures in the 1970s-1990s. Turning
points of global business cycles before the outbreak of the
COVID-19 pandemic are identified using global per
capita gross domestic product (GDP) as in World Bank
(2020b). Since 1970, there have been five global recessions
with their troughs in 1975Q1, 1982Q4, 1991Q1, and2009Q1, and 2020Q2. These recessions were associatedwith a wide range of adverse developments, including
financial crises in advanced economies or EMDEs (Kose,
Sugawara, and Terrones 2020).

Note: This box was prepared by Jongrim Ha, M. Ayhan Kose, andFranziska Ohnsorge.
a. The rolling average smooths out seasonal and short-term factors.
Other studies often employed different measures of trend inflation thatspan somewhat longer horizons; Ball (1994) employed a nine-quarter
centered rolling average to eliminate the irregular factors in inflation. If
applied here, this would rule out a comparison with 2020 for lack of data.
Therefore, the four-quarter trailing moving average of inflation is
employed instead. The results are largely consistent using four-quarter
centered rolling averages.

The disinflation around global recessions was broad-based
across country groups (for both headline CPI and GDP
deflator inflation) and inflation measures (figure B4.1.2).
That said, in the 1970s through 1990s, the inflation
decline was steeper in advanced economies than EMDEs,
partly due to the delayed disinflation in EMDEs with highinflation in early 1990s. From 2000, the decline ininflation around global recessions was much more
pronounced in EMDEs. Data for other inflation measures,such as core CPI and PPI inflation, is only available for the2009 and 2020 recessions. In both the global recession of2009 and of 2020, global inflation declined by all
measures of inflation, but the inflation decline was larger
and more prolonged in 2009 for all measures of inflation.

Drivers of inflation during global recessions
The inﬂation decline in the ﬁrst ﬁve months of 2020 was
predominantly demand-driven. With the exception of the1991 global recession, disinﬂation in previous global
recessions was driven by a broader range of factors (ﬁgure
B4.1.3; Ha, Kose, and Ohnsorge 2019).
•

The disinﬂation in the global recession of 1975 was
predominantly driven by oil price shocks but also, in
almost equal measures, by global supply and demand
shocks. This was in part an unwinding of the surge in

137

138

CHAPTER 4

G LO BAL EC O NO MIC P ROS P EC TS | J U NE 2021

BOX 4.1 Inflation during global recessions (continued)
FIGURE B4.1.1 Headline CPI inflation around global recessions
Global recessions (in 1975, 1982, 1991, 2009, and 2020) have typically been associated with slowing global inflation.
A. Global CPI inflation around global
recessions

B. Advanced-economy CPI inflation
around global recessions

C. EMDE CPI inflation around global
recessions

Sources: Kose, Sugawara, and Terrones (2020); World Bank (2020a, 2021a).
Note: Horizontal axes indicate years before and after the troughs of global recessions (shaded area, t = 0). Global inflation is defined as median trend inflation (4quarter rolling average of quarterly annualized inflation) across 76 countries, consisting of 25 advanced economies and 51 EMDEs. Troughs of global recessions are
identified using global per capita GDP and the algorithm in Harding and Pagan (2002) and are consistent with the results in Kose and Terrones (2015). Trough of global
recession in 2020 is assumed to be at the second quarter of 2020. EMDEs = emerging market and developing economies.

FIGURE B4.1.2 Evolution of inflation during 2009 and 2020 global recessions
All measures of global and EMDE inflation tend to decline with the onset of global recessions before picking up again. By
all measures, the movements of global and EMDE inflation through the global recession of 2020 were more muted andshorter-lived than those during the global recession of 2009.
A. Global PPI inflation
2009

Percent
25

B. EMDE PPI inflation
Percent
20

2020

20

2009

C. Global core CPI inflation
2020

Percent
8

2009

2020

0

2

15

6

15

10

10

4

5

5

0

0

2
-5

-5

-10

-10
-6

-4

-2

0

2

4

0
-6

6

-4

-2

0

2

4

D. EMDE core CPI inflation

E. Global GDP deflator inflation

Percent
12

Percent
10

2009

2020

10

2009

6

-6

-4

-2

4

6

F. EMDE GDP deflator inflation

2020

2009

Percent
14

2020

12

8

10

8
6

8

4

6

6
4

4

2

2

0

0

-6

-4

-2

0

2

4

6

2
0
-6

-4

-2

0

2

4

6

-6

-4

-2

0

2

4

6

Sources: Kose, Sugawara, and Terrones (2020); World Bank (2020a, 2021a).
Note: Horizontal axes indicate quarters before and after the troughs of global recessions (t=0). Global inflation is defined as median trend inflation (four-quarter rolling
average of quarterly inflation). Core inflation data are available for 51 countries, including 28 emerging market and developing economies (EMDEs), and producer priceindex (PPI) data are available for 85 countries, including 53 EMDEs, GDP deflator data are available for 81 countries, including 50 EMDEs. Troughs of global
recessions are 2009Q1 and 2020Q2.

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CHAPTER 4

BOX 4.1 Inflation during global recessions (continued)
FIGURE B4.1.3 Drivers of disinflation in past global recessions
Inflation in global recessions has been driven by different types of factors. In 1991, demand largely explained the collapse ininflation movements. In 1975 and 2009, oil price movements were the main source of inflation variation.
A. Contribution to disinflation aroundglobal recessions: Headline CPI inflation

B. Contribution to disinflation aroundglobal recessions: PPI inflation

C. Contribution to disinflation aroundglobal recessions: Core CPI inflation

Percent
100

Percent
100

100

80

80

60

60

40

40

40

20

20

20

80
60

0

0
1975
Oil

1982

1991

SupplyDemand

2009

0
1975
Oil

1982

1991

SupplyDemand

2009

1975
Oil

1982
Supply1991
Demand2009

Sources: Ha, Kose, and Ohnsorge (2019); Kose, Sugawara, and Terrones (2020).
Note: Historical decompositions of global inflation measures are estimated by the global FAVAR model for the sample period
1970-2017. Troughs of global recessions are identified using global per capita GDP and the algorithm in Harding and Pagan (2002) and are consistent with the results in
Kose and Terrones (2015). Charts show relative contribution of oil price, global demand, and global supply shocks to global disinflation from the trough of the global
recession to the subsequent trough in global inflation.

inﬂation after the oil crisis in 1973-74 when oil prices
quadrupled and an oil embargo disrupted transportand manufacturing.
•

The disinﬂation in the 1982 global recession was
driven by global demand shocks (one-half), global
supply shocks (one-quarter) and global oil priceshocks (one-quarter). This disinﬂation was in part theintended response to the monetary policy tightening
in major advanced economies, after the oil price crisisof 1979 (following the Iranian revolution) led to asurge in inﬂation.

•

The disinﬂation in the 1991 global recession was
predominantly global demand driven as ﬁnancial
crises or credit crunches in several advanced
economies culminated in a global recession.

•

The disinﬂation at the height of the global recession of2009 (2008Q4 and 2009Q1) was driven by bothdemand and oil price shocks in broadly equalmeasure. Despite coordinated global ﬁscal andmonetary policy support, the global ﬁnancial crisis
caused a deep global recession that was accompanied
by a two-thirds plunge in oil prices in the ﬁve months
from July 2008.

Again, with the exception of the global recession of 1991,
the predominance of demand shocks in driving down core

CPI and PPI inﬂation during the 2020 pandemic contrasts
with the sources of disinﬂation in previous recessions.
•

In 1975, oil price shocks and demand shocks were themain source of PPI disinﬂation and oil price shocks
and supply shocks the main source of core CPI
disinﬂation. Disinﬂation at that time mainly reﬂected
an unwinding of earlier shocks—the oil price spike of1974 and the inﬂationary impact of wage andconsumer price controls being lifted, accompanied by
the collapse of the Bretton Woods ﬁxed exchange rate
system in 1971. The large role of oil price shocks incore CPI inﬂation dynamics—notwithstanding theexclusion of energy from the core inﬂation
aggregate—in the 1970s may also have reﬂected
poorly anchored inﬂation expectations once thenominal anchor of the Bretton Woods ﬁxed exchange
rate regimes was lost (Ha et al. 2019b).

•

In 1982, supply and demand shocks were the main
source of core CPI disinﬂation and demand shocks
the main source of PPI disinﬂation. Again,
disinﬂation in part reﬂected a drawn-out unwindingof earlier shocks. By the late 1970s, inﬂation
expectations had become unanchored in someadvanced economies and inﬂation-wage spirals
became entrenched in major advanced economies
while output growth stagnated at a low level (Bryan
2021). The doubling of oil prices in 1979 added fuel

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BOX 4.1 Inflation during global recessions (continued)
FIGURE B4.1.4 Inflation in 2008-10 and 2020-21
In the pandemic-induced global recession of 2020, inflation declined less and rebounded faster than in the financial-crisisinduced global recession of 2009.
A. Global inflation
Percent
16
14
12
10
8
6
4
2
0
-2
-12 -8

B. EMDE inflation

2009

2020

2009

Percent

2020

Percent
100

16
14

80

12
10

60

8
40

6
4
0
-4

0

4

8

12 16 20 24-12 -8-4

0

4

E. Oil price growth

Percent

Percent
250

2009

2020

8

0
Sep-0812 16 20 24

2009

2020

7
6

10

100

3
2

2

-50

1

0

-100
-4

0

4

8

12 16 20 24

2020

4

0

-12 -8

Sep-09550

4May-09

8

150

6

2009

Percent200

8Jan-09F. Inflation expectations for EMDEs

12

14

GlobalEMDEs
Advanced economies

20

2

D. Global food price inflation

16

C. Share of countries with declining
inflation

0-12 -8

-4

0

4

8

12 16 20 24-6 -4 -2

0

2

4

6

8

10 12 14

Sources: Consensus Economic; Haver Analytics; World Bank.
Note: Year-on-year monthly inflation for 81 countries, of which 31 are advanced economies and 50 are emerging market and developing economies (EMDEs). t=0 is
September 2008 for 2009 and January 2020 for 2020.
A.B. Blue and red lines are medians, dotted lines are interquartile ranges.
C. Share of all countries, advanced economies and EMDEs in which year-on-year inflation slowed from one month to the next. Gray line shows 50 percent.
D. Median.
E. Year-on-year growth in the average of Brent, Dubai, and WTI oil prices.
F. Consensus inflation expectation for 2009 (“2009”) and 2021 (“2020”) for 48 EMDEs .

to inﬂation pressures. The monetary tightening acrossadvanced economies in the early 1980s helped
stabilize inﬂation expectations while also causing
recessions.
•

In 2009, negative oil price shocks and global demand
shocks contributed, in almost equal measure, todeclines in global PPI inﬂation while core CPI
inﬂation remained broadly stable as negative demand
shocks were oﬀset by negative supply shocks. Wellanchored inﬂation expectations from the early 2000s
helped stabilize inﬂation despite adverse demand
shocks.

Inflation during the last two global recessions
A more granular comparison, using monthly data for 31
advanced economies and 50 EMDEs for 2001-2021, ispossible for the global recessions of 2009 and 2020. This
exercise also shows that the global inflation decline during
the global recession of 2020 has been more muted andshorter-lived than during the global recession of 2009
(figure B4.1.4). This may reflect the fact that the global
recovery from the 2020 recession was swifter than that ofany previous global recession in the past eight decades,
despite the global recession being the most severe since theSecond World War (box 1.1).
Inflation declined by 0.9 percentage point globally and 1.2
percentage point in EMDEs from January 2020 before
reaching its trough in May 2020—five months after the
beginning of the global pandemic. In contrast, inflation
declined by 6.3 percentage points globally and 7.6
percentage points in EMDEs from September 2008 to its
trough in October 2009—13 months after the bankruptcy

G LO BAL EC O NO MIC P ROS P EC TS | J U NE 2021

CHAPTER 4

BOX 4.1 Inflation during global recessions (continued)of Lehman Brothers that set off the global financial crisis.
Whereas inflation started rising in the majority ofcountries five months after the onset of the pandemic, inMay 2020, it only started rising in the majority ofcountries a year after the onset of the global financial crisis,in October 2009. The global recession of 2009 itself
featured a shallower and shorter-lived inflation decline
than previous global recessions.
The decline in global inflation from January-May 2020
was four-fifths driven by the collapse in global demand
and another one-fifth driven by plunging oil prices, withsome offsetting inflationary pressures from supply
disruptions. This contrasts with the global financial crisis
in which the 13-month decline in global as well as EMDE
inflation was about one-half driven by plunging oil prices
and only one-third driven by the contraction in global
demand. The greater role of global demand in the inflation
decline in 2020 than in previous global recessions may
reflect the sheer severity of the recession of 2020 (WorldBank 2021a). In their rebounds, however, global and
EMDE inflation developments after the two global
recessions of 2009 and 2020 resembled each other: bothwere virtually entirely driven by increases in global
demand.
Short-term (one-year-ahead) inflation expectations incheddown by 0.3 percentage point globally between March andRelative importance ofdrivers of inflation
To disentangle the quantitative importance ofsome of these forces, a factor-augmented VAR(FAVAR) model with sign and narrative
restrictions is estimated. The model is applied tothree global variables—inflation, output growth,and oil price growth—all expressed in month-onmonth growth rates. Global inflation and output
growth are proxied by the common global factor
estimated using a dynamic factor model of crosscountry inflation and industrial production
growth, respectively (annex 4.1). The dynamic
factor model includes monthly data for 30
advanced economies and 51 EMDEs for 20012021. The global oil price is based on the averageof Dubai, West Texas Intermediate, and Brent oil

May 2020 before stabilizing again at 2.0 percent for theremainder of 2020. They only rose by 0.2 percentage
point in March 2021 as it became apparent that therecovery was proceeding faster than anticipated and new
policy support measures were approved (chapter 1). In
EMDEs, inflation expectations declined by 0.5 percentage
point throughout 2020 until a 0.4 percentage point uptickin March 2021. These minor movements of short-term
inflation expectations stand in sharp contrast to the 2.1
percentage point decline globally and 2.6 percentage point
decline in EMDEs in the 14 months following September
2008, through the global recession of 2009. Long-term
inflation expectations also remained stable in 2020, bothglobally and in EMDEs—for EMDEs, in contrast to the
1.0 percentage point decline in the 18 months following
September 2008. This in part reflected a view that thedisruptions caused by the pandemic were temporary innature and may have helped dampen fluctuations in global
inflation.

Conclusion
Global recessions are associated with sharp movements ininflation. The 2020 global recession featured the most
muted and least protracted inflation decline. This may
have reflected lower initial inflation but, in 2020, also
deployment of unprecedented policy support and a rapid
economic recovery.

prices, as reported in the World Bank’s Pink Sheetof commodity prices. The exercise is repeated foradvanced economies and EMDEs separately, andfor headline CPI inflation, core CPI inflation, and
PPI inflation. The PPI tends to have larger
tradables content than the headline CPI, whereas
the core CPI tends to have smaller tradables
content than the headline CPI (Ha, Kose, andOhnsorge 2019). The estimation results suggest asequence of changing disinflationary forces inJanuary-May 2020 that were subsequently
unwound.
•January-May 2020. Between January andMay, four-fifths of the decline in global
inflation reflected the collapse in global
demand as consumption and investment
collapsed amid lockdowns and uncertainty
about policies and growth prospects. Another

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FIGURE 4.5 Drivers of inflation in 2020-21
In February and March 2020, an oil price plunge dampened global
inflation; in March-May 2020, the demand collapse caused by a deep
recession further lowered inflation, although supply disruptions offset someof the disinflationary pressures. These forces were unwound by mid-2020.
A. Contributions to monthly change
in global headline CPI inflation in
2020-21

B. Contributions to monthly change
in EMDE headline CPI inflation in
2020-21

Percentage point
0.5

Percentage point
0.5

0.0

0.0

-0.5

Oil

SupplyDemandInflation

-0.5

Oil

SupplyDemandInflation

Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
Jan
Feb
2020

2021

Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
Jan
Feb

-1.0

-1.0

2020

2021

Source: World Bank.
Note: Contributions to changes in year-on-year headline consumer price inflation from the previous
month for 81 countries, of which 31 are advanced economies and 50 are emerging market anddeveloping economies (EMDEs), based on factor-augmented vector autoregression (FAVAR)
estimation over the period of 2001-21 in annex 4.1. Monthly data. Unexplained residual is omitted
from the graph. “Oil,” “Supply,” and “Demand” indicate oil price shocks, global supply shocks, andglobal demand shocks, respectively.

one-fifth reflected the plunge in oil prices.
Both globally and for EMDEs, disinflationary
effects from collapsing demand and oil prices
were partly offset by the inflationary effect of
supply disruptions such as disruptions to firm
operations and global shipping caused bypandemic restrictions to domestic economic
activity and international travel (figure 4.5).
Within this five-month period, however, theforces affecting inflation shifted. In February
and March 2020, the decline in global
inflation was in almost equal measure due tothe plunge in oil prices and a collapse inglobal demand, but the disinflationary impactof the collapse in global demand intensified in
April.5•

May 2020-February 2021. The collapse indemand and oil prices as well as supply
disruptions began to unwind as consumers,

5 The predominant role of demand shocks and some offsettingrole of supply shocks during the pandemic were also found in somerecent studies; see, for instance, Bekaert, Engstrom, and Ermolov(2020) for the United States, and Baleer et al. (2020) and O’Brien,
Dumoncel, and Gonçalves (2021) for the euro area.

firms, and investors began to adjust their
behavior and operations. From May, asinternational trade and global manufacturing
activity rebounded, supply factors began tolower inflation (figure 4.5). A sharp reboundin demand, however, raised inflation as
consumption shifted from in-person to onlinetransactions. For the period from May 2020
to February 2021, demand pressures accounted for virtually all of the increase in global
inflation and these were partially offset by
improved supply conditions. For EMDEs, therecovery in oil prices from mid-2020
contributed one-third as much as the recovery
in demand to the uptick in inflation.

Prospects for inflation
Short-term inflation prospects
The global recession of 2020 was unusually severe
but short (chapter 1; box 1.1; box 4.1). This was
also reflected in inflation developments. The
accompanying inflation decline was unusually
muted and short-lived. Looking ahead, somefactors point to an increase in inflation over thenear term but stable low inflation over the longterm. However, shocks may interact with largescale policy support to deliver higher inflation andinflation volatility over a 2-3-year horizon(Baldwin and di Mauro 2020; Blanchard 2020).
Uncertainty about future inflation is also reflected
in wide disagreement among survey respondents
on future inflation prospects, which could be asign of growing risk of inflation expectations
becoming unanchored (Ebrahimy, Igan, and Peria
2020; Williamson 2021). A FAVAR model is used
to project global, advanced-economy and EMDE
inflation in coming months that would beconsistent with the growth and oil price forecastspresented in chapter 1.
Global output growth is expected to exceed 5
percent in 2021 and oil prices are expected to riseover the year as a whole (Chapter 1). This suggests
an increase in global inflation by 1.4 percentage
points in 2021 (from 2.5 percent in 2020 to 3.9
percent in 2021; figure 4.6). The model-predicted
global inflation of 3.9 percent in 2021 is com-

G LO BAL EC O NO MIC P ROS P EC TS | J U NE 2021

If a similar exercise has been conducted in January
2009, with the benefit of hindsight for output
growth and oil price movements, it would haveyielded a projected decline in global inflation of
3.3 percentage points for 2009—just below theactual decline of 4.5 percentage points. A similar
exercise conducted in 2011 would have predicted
an upturn in global inflation of 0.8 percentage
point in 2011, which was just below actual
inflation declined (1.3 percent), followed by an
inflation decline of 0.5 percentage point in 2012,
which was also just below actual declines (0.9
percentage point).
For advanced economies, growth and oil priceforecasts are consistent with inflation rising to 1.8
percent in 2021 (from 0.5 percent in 2020)—still
below the target rate of 2 percent in many
advanced economies but a touch above the 1.4
percent average over the 2010s. For virtually all
advanced economies, the model-predicted moderate inflation rise would bring inflation closer toinflation targets. A similar exercise conducted in
January 2009 would have forecast a decline inadvanced-economy inflation of 2.4 percentage
point for 2009, again below the 3.4 percentagepoint decline in inflation between 2008 and 2009that actually materialized.
For EMDEs, growth and oil price forecasts would
be consistent with inflation rising to 4.6 percent
from 3.1 percent, well above the average over the
2010s of 3.8 percent. It would be just a touch
above the mid-range (3.8 percent), but still below
the 5.1 percent upper bound of the average
inflation-targeting EMDE’s target range. For the
one-half of inflation-targeting EMDEs with
inflation well below target, the model-predicted
moderate inflation rise also would bring inflation
closer to target. For another one-half of inflationtargeting EMDEs, however, a rise in inflation ofthis magnitude would put inflation above target.
This may not warrant a policy response provided
the inflation pickup is temporary. Should it,
however, risk de-anchoring inflation expectations,
it could become a monetary policy challenge that
may hold back the recovery. In some EMDEs,

FIGURE 4.6 Prospects for inflation
Inflation has risen since the second half of 2020 in both advanced
economies and EMDEs. Conditional forecasts of global inflation suggestthat global inflation will increase by around 1.4 percentage point in 2021.
Survey- and market-based inflation expectations also point to a moderate
rise in global inflation in near future.
A. Model-based conditional forecastof global inflation

B. Model-based conditional forecastof EMDE inflation

Percent88Percent

6

6

4Median inflation target

4

2

2

0
Pre-pandemic(2010-19)

2020

2021f

0
2019

2020

2021f

C. Survey-based inflation expectations: headline CPI inflation

D. Inflation expectations by selectcentral banks: headline CPI inflation

E. Market-based inflation expectations

F. Survey-based inflation
expectations: global PPI and wage
inflation

Percent
3
2
1
0

Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
Jan
Feb
Mar
Apr
May

parable to average inflation during 2011-13 after
the global financial crisis.

143

CHAPTER 4

2020

2021

Sources: Haver Analytics; Consensus Economics; World Bank.
Note: EMDEs = emerging market and developing economies; PPI = producer price index.
A. Conditional forecast of global inflation based on quarterly FAVAR model of global inflation, global
GDP growth, and oil price growth. Vertical line indicates 16-84 confidence bands. See annex 4.1 fordetails.
B. Based on median inflation in 125 EMDEs and inflation target in 30 inflation-targeting EMDEs. 2021
inflation is based on the conditional forecast of EMDE inflation. Vertical line indicates 16-84
confidence bands.
C. Average headline CPI inflation expectations for 2021-22 based on surveys of May 2021 in 57
countries (31 advanced economies and 26 EMDEs). 2020 indicates actual inflation rates. Verticallines indicate maximum and minimal responses.
D. Median headline CPI inflation expectations for 2021-22 based on surveys of G7 economies andseven large EMDEs (Brazil, China, Mexico, India, Indonesia, Russian Federation, Turkey).
E. Median implied breakeven inflation, measured as the spreads between nominal and real 5-year
treasury bond yields in 7 advanced economies (Australia, Canada, Germany, the Republic of Korea,
New Zealand, United Kingdom, and United States). Dotted lines indicate inter-quartile range.
F. Median Producer Prices Index (PPI) and wage inflation expectations for 2021-22 based on surveysof 9 and 23 economies, respectively. 2020 indicates actual inflation rates. Vertical lines indicate
maximum and minimal responses.

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BOX 4.2 Food price volatility and inflation in low-income countries
Inflation in low-income countries (LICs) increased in the run-up to, and following, the outbreak of COVID-19. The rise has
been largely driven by increases in food prices and currency depreciations. Higher prices for food, which accounts for about half ofconsumption in LICs, threaten to increase poverty. In the near term, further rises in global agricultural prices are likely to add toinflationary pressures in LICs. Subsequently, an expected stabilization of commodity prices and moderate demand growth are
likely to result in a gradual decline in consumer price inflation in these economies. A more persistent rise in agriculturalcommodity prices, or pressure to finance large fiscal deficits, could risk ingraining higher inflation into expectations and may
warrant tighter monetary policy. In addition, attempts to lower food price inflation through price subsidies in a large number ofcountries, or the re-emergence of protectionist policies, could drive global prices higher and prove to be self-defeating.

Introduction
Inflation in low-income countries (LICs) has declined overthe past three decades. The COVID-19 pandemic has
been associated with a sharp growth slowdown in LICs,
accompanied by rising consumer price inflation. The
inflation pickup in 2020 predominantly reflected risingfood price inflation. Rising inflation, particularly whendriven by sharp increases in food prices, raises poverty,
increases malnutrition, and curtails the consumption of
essential services such as education and health care (IDA
2020; Laborde, Lakatos, and Martin 2019; World Bank
2011a). In addition, LICs face larger challenges incontrolling inflation than other emerging market anddeveloping economies (EMDEs) due to weaker policy
frameworks and less developed financial systems; higher
volatility of output and demand; and the larger influenceof global commodity prices, particularly agricultural prices(Ha et al. 2019b).
The persistence of the recent rise in LIC inflation will
depend upon the persistence of its drivers and the responseof policy makers. The inflationary impact of one-off rises
in commodity prices or currency depreciation may
dissipate provided inflation expectations remain anchoredand institutional credibility is sufficient. However, further
upward momentum for commodity prices, or overly
accommodative monetary policy, perhaps influenced byfiscal objectives, could lead to more persistent increases in
inflation.
In light of these challenges, this box addresses thefollowing questions:•

How has inflation evolved in LICs during the
pandemic?

•

What are the prospects for inflation in LICs?

Note: This box was prepared by Jongrim Ha and Gene KindbergHanlon. It rests on monthly data for consumer price inflation in 20
economies that have been classified as LICs at least once since 2019.

•

What are the implications of rising inflation for foodsecurity?

Recent inflation developments in LICs
Inflation before the pandemic. LICs have made large
strides in price stabilization over the past three decades,
lowering inflation from 25 percent in 1994 to 3.4 percent
in 2019 as policy frameworks improved and demands for
deficit financing on central banks were reigned in (Ha,Kose, and Ohnsorge 2019). Nevertheless, inflation has
been persistently higher in LICs than in other EMDEs, at
4.4 percent since 2018, compared to just 2.7 percent in
EMDEs (figure B4.2.1.A).a Historically, higher rates ofinflation in LICs have been attributed to monetaryfinancing of deficits and frequent negative supply shocks(Baldini and Poplawski-Ribeiro 2011; Weidmann 2013).
More recently, inflation in LICs accelerated ahead of theoutbreak of the pandemic as a result of a sharp increase inglobal food price inflation that started from the second
half of 2019, rising from 3.5 percent in May 2019, to 3.9
percent in January 2020, before national lockdowns
became widespread.
Rising inflation in 2020 in LICs. Whereas inflation inadvanced economies and EMDEs fell after the widespread
implementation of restrictions on movement across theworld, median inflation in LICs rose from 3.9 percent inJanuary 2020 to a new peak at 5.6 percent in April 2020
(figure B4.2.1.B). The pickup in inflation over this period
affected the majority of LICs and ranged up to 5
percentage points. Since September 2020, inflation has
somewhat moderated to approximately its level in 2019.
As a result, LIC inflation for 2020 as a whole increased by
1.1 percentage points from the previous year, althoughremains about a percentage point below its average over
2015-2019.

a. See World Bank (2018) for the long-term trend of inflation in
LICs over the last five decades.

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CHAPTER 4

BOX 4.2 Food price volatility and inflation in low-income countries (continued)
FIGURE B4.2.1 Inflation developments in LICs
Inflation has on average been higher in LICs relative to other EMDEs. In contrast to inflation in other EMDEs, inflation in LICs
increased in both the months ahead of, and following, the announcement of widespread lockdown measures in March 2020.
For 2020 as a whole, inflation in LICs rose by 1.1 percentage points as a result of rapid inflation of the price of food, which
accounts for nearly half of consumption in LICs. A recent surge in agricultural commodity prices may add to inflationarypressures in LICs in the near term.
A. Median inflation in LICs and EMDEs:
2017-21
LICs

EMDEs

Percent
6
Food
EnergyOther goods and service
4

Percent
60
50
40
30
20
10
0
-10
-20

May-21

Jan-20

Sep-18May-17Jan-16

Agricultural commodity prices(RHS)

Sep-14

LIC food inflation

May-13

Percent
12
10
8
6
4
2
0
-2
-4

0

Jan-21

Sep-20Jan-20May-20

Sep-19Jan-19

May-19Sep-18Jan-18May-18

Sep-17

D. Agricultural commodity prices andfood price inflation in LICs

Jan-12

C. Contribution of food and energy prices
to inflation2

May-17Jan-17

Percent
10
9
8
7
6
5
4
3
2
1
0

B. Inflation in LICs: 2020-21

2019

2020

2019

Non-LIC EMDEs

2020
LICs

E. Share of food in goods imports andconsumption

F. Exchange rate adjustment and inflation

Percent
50

Percent
12

Food share of CPI
Food share of goods imports

40

Peg

Floating

10
8

30

6

20

4

10

2
0

0
LIC

Non-LICEMDE

Advanced
economies

peg

floating

Headline CPI

peg

floating

Food CPI

Sources: Havers Analytics; International Monetary Fund; National sources; World Bank.
Note: EMDEs = emerging market and developing economies; LICs = low-income countries.
A B. Based on headline consumer price inflation for up to 20 LICs and 80 EMDEs.
C. Sectoral headline consumer price index (CPI) inflation rates are based on median across 111 countries in 12 sectors. Sectors are categorized following International
Financial Statistics. Food indicates food and nonalcoholic beverages and alcoholic beverages, tobacco, and narcotics sectors. Energy indicates housing, water,electricity, gas and other fuels. Other goods include clothing and footwear, furnishings, household equipment and routine household maintenance sectors. Service sector
includes health, transportation, communication, recreation, education, restaurants, and miscellaneous sectors.
D. Average food and nonalcoholic beverage price inflation in up to 10 LICs and annual growth in the nominal agricultural commodity price (from the World Bank’s Pink
Sheet).
E. Weight of food and nonalcoholic beverages in the CPI and share of total merchandise imports.
F. Bars (diamonds) indicate headline and food CPI inflation in 19 LICs based on simple median (simple average) by de facto exchange rate regime as defined in Klein
and Shambaugh (2010). Peg indicates LICs with fixed exchange rates.

Rising agricultural commodity prices. One of the primary
drivers of the rise in consumer prices ahead of andfollowing the COVID-19 pandemic was rising foodprices. b In 2020, food prices contributed 1.3 percentage
points to inflation in LICs, explaining most of the increasein headline inflation from 2019; this compares with anb. In April 2020, rice prices rose 32 percent above April 2019 levels.
By November 2020, wheat prices were 11 percent higher, while soybean
prices were 33 percent higher than in November 2019.

increase in the contribution of just 0.2 percentage point inother EMDEs. In contrast, the contribution of the energy
sector and other goods and services was little changed or
declined in LICs in 2020 (figure B4.2.1.C).
Agricultural commodity prices rose sharply in 2020,
driven largely by increasing prices of meals and oils (+16percent) and grains (+5 percent) (figure B4.2.1.D). Strong
demand, some weather-related supply disruptions, and thethreat and enactment of export restrictions in some major

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BOX 4.2 Food price volatility and inflation in low-income countries (continued)
FIGURE B4.2.2 Outlook for inflation in LICs
Following a sharp slowdown in growth in 2020, LICs are expected to experience a modest recovery in 2021-23. LIC inflation
is expected to rise in 2021 as a result of the recent acceleration in food prices. The dispersion of forecasts remains large,
however. Global agricultural prices are forecast to remain elevated in the coming years, amid continued high demand forstaples, but the pace of growth will slow as COVID-related disruption, including trade restrictions, dissipates. Inflation issubsequently likely to moderate in 2022 owing to weak domestic demand.
A. GDP growth and inflation forecast

B. Commodity price forecasts

C. Food export restrictions in place
Count
25
20
15
10
5
Jan-21

Feb-21

Dec-20

Oct-20Nov-20

Sep-20Jul-20Aug-20Jun-20

Apr-20May-200Mar-20146

Sources: International Monetary Fund; Labord, Mamun, and Parent (2020); World Bank.
A. Median and interquartile range of consumer price growth forecasts among 19 LICs in the IMF’s April 2021 World Economic Outlook and World Bank’s June 2021
Global Economic Prospects forecast for GDP growth in LICs.
B. Nominal commodity price forecasts in the World Bank’s April 2021 Commodity Market Outlook.
C. Number of restrictions on the export or import of food in place. Data on announcements available to end-November 2020.

grain producers added to price pressures. In LICs, foodaccounts for about half of consumption baskets and 20
percent of goods imports, a larger share than in other
EMDEs (figure B4.2.1.E). There is therefore a strong
relationship between globally determined agriculturalcommodity prices and LIC inflation; the correlation
between agricultural prices and food price inflation in
LICs is about 40 percent.
Exchange rate depreciation. Alongside rising agriculturalcommodity prices, exchange rates in some LICs
depreciated at the start of the pandemic. Between
December 2019 and April 2020, exchange rates in LICs
depreciated by between 1 and 8 percent. The pass-throughof depreciation into inflation tends to be stronger in LICs
than in other EMDEs (Ha et al. 2019a). Indeed, inflationin LICs with floating exchange-rate regimes was two
percentage points higher than in LICs with fixed exchange
rate regimes in 2020 (figure B4.2.1.F).c
Price pressures due to conflict, and policy uncertainty. In
fragile and conflict-affected LICs (including Chad andc. This is based on a de factor exchange regime as defined in Klein
and Shambaugh (2010).

Haiti) and those experiencing high levels of politicaluncertainty (Ethiopia), inflation was higher by two
percentage points on average in 2020 than in other LICs.
Food supply insecurity during the pandemic coincidedwith episodes of natural disasters and large-scale internal
violence, including civil wars, in some LICs (FSIN and
GNAFC 2021; WFP and FAO 2021).d

Inflation prospects in LICs
Inflation in LICs is likely to face offsetting pressures in the
future. The recovery in LICs is expected to be subdued
with growth returning only to its pre-COVID average andper capita incomes still below pre-pandemic levels in 2022.
On the upside in the near term, the recent pickup in
global agricultural and energy prices may pass more fully
through to LIC inflation in the remainder of 2021.
Overall, LICs are likely to face rising aggregate and foodprice inflation in 2021, which is expected to subsequently
gradually decline. However, the outlook is highly

d. Conflict is estimated to be the main driver of food insecurity forover 120 million people in 2020 (FSIN and GNAFC 2021).

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CHAPTER 4

BOX 4.2 Food price volatility and inflation in low-income countries (continued)
uncertain and will depend on a range of factors, including
the monetary policy response.e
Weak recovery in output. LICs are expected to experiencea modest recovery in 2021-22. Until 2022, growth isexpected to be weaker than average growth during 201019 (figure B4.2.2.A; box 1.3). In line with a weak recovery
in demand, domestic price pressures are likely to remain
subdued, such that inflation will decline as the effects ofcommodity price increases fade.
Recent rapid rise in agricultural prices. Agriculturalcommodity prices have grown rapidly; as of May 2021,
agricultural commodity prices were 37 percent higher thana year ago, the fastest price increase since 2011. The
historically rapid pass-through from commodity prices todomestic food price inflation, along with the prospect of amodest recovery in demand, and oil price increases
suggests a further increase, albeit moderate, in LICs
inflation in the remainder of 2021 (figure B4.2.2.B;
chapter 1). Absent other shocks, a stabilization ofagricultural prices later in 2021 may allow for a slowdown
in LIC inflation in 2022 and beyond.

Food security: The implications of rising foodprices during the pandemic
In the near term, rising food prices and accelerating
aggregate inflation are likely to compound increasing foodinsecurity in LICs. In addition to rising food prices andinflation, lost income due to the pandemic, ongoing or
intensifying conflicts or political instability has led to asurge in food insecurity in 2020 and 2021. The number ofpeople experiencing a food shortage crisis increased from
135 million in 2019 to about 165 million people in 2020
(FSIN and GNAFC 2021; WFP and FAO 2021). Manycases of rising food insecurity are in LICs (table 4.1).
Food supply disruptions. Globally, food price inflation
increased, from 2.4 percent in 2019 to 3.5 percent in 2020reflecting higher commodity prices, domestic supply
disruptions, outright hoarding, and depreciations thatraised the price of imported foods. Pandemic-related
restrictions on movement and labor supply damaged foodproduction and distribution (IFPRI 2021). Export andimport restrictions contributed to food supply disruptions,although most restrictions are no longer in force (figure

e. This is consistent with the prospects for global and EMDE
inflation based on survey-based inflation expectations and central-bankforecasts.

B4.2.2.C). Food price increases also followed previous
pandemics and other natural disasters (Ebrahimy, Igan,
and Peria 2020). LICs are particularly vulnerable to these
disruptions, as poor transport links prevent the adaptationof supply chains, and food comprises a large share ofhousehold consumption (Bleaney and Francisco 2018;
Cachia 2014; Ha, Kose, and Ohnsorge 2019). As a result,poorer households—which are more prevalent in LICs
than in other EMDEs—may suffer greater welfare losses
from food and other types of inflation than wealthierhouseholds. An erosion of their real incomes and assets
through inflation could tip these households into extreme
poverty.f
Potential spillovers of food prices to inflation in othersectors. Higher and more volatile inflation in LICs than inother EMDEs partly reflects the poorer anchoring of
inflation expectations that allow fluctuations in food prices
to spill over into inflation in other sectors.g In addition,exchange rates in LICs tend to be more volatile than thosein other EMDEs, in part reflecting the greater frequency of
supply shocks in LICs (World Bank 2020b). With
inflation expectations poorly anchored, households in
LICs are less able to protect the real value of their income
and assets from the impact of persistent and elevatedinflation (Ha et al. 2019b; World Bank 2020b).
Shocks to income. In addition to rising prices of staple
foods, poorer households experienced a severe negative
income shock due to COVID-19. The number of people
living on less than $1.90 a day is estimated to have risen by
119-124 million in 2020 (Lakner et al. 2021). In somecases, the large concentration of production in agriculture
in LICs can result in boosts to household income
following rises in agricultural prices. However, the net
impact of higher prices has been found to result inincreasing poverty among LIC households, including
during the last major rise in agricultural commodity prices
in 2010-11 (Ivanic and Martin 2008; Ivanic, Martin, andZaman 2012).hf. The literature provides empirical evidence that higher inflation isassociated higher income inequality, or with a lower share of income heldby the poor (Datt and Ravallion 1998; Siami-Namini and Hudson2019).
g. The effectiveness of monetary policy in LICs remains limited-arising from higher economic volatility and pervasive use of administeredpricing, conflicts among central bank policy objectives, and limited
analytical capacity at central banks (Mishra and Monteil 2013; WorldBank 2020b).
h. Longer term, rises in food prices have been found to boost wages
and profits in food producers as output adjusts (Ivanic and Martin 2014).

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BOX 4.2 Food price volatility and inflation in low-income countries (continued)

Policy options
High inflation in LICs, driven by rising food prices,
COVID-related supply disruptions, and to some extent,
currency depreciation, is likely to increase poverty in LICs.
A key objective for policy makers could be to ensure thatrising inflation rates do not lead to a de-anchoring of
inflation expectations and the further erosion of realhousehold income. Subsidies or price controls to reducethe burden of rising food prices may appear attractive but
carry the risk of increased strains on the fiscal balance ofhighly indebted governments, and also risk adding further
upward pressure on global agricultural prices.
Response to more persistent or broad-based price rises.
While many LICs responded to the pandemic by cutting
policy rates in 2020, some LICs (Mozambique, Tajikistan)
started to raise interest rates in 2021. In LICs with large
economic slack and below-target inflation, continued
monetary easing and fiscal support can help the recovery
gain traction and raise inflation towards the target.
Furthermore, in LICs where inflation rises above target
due to temporary commodity price rises but
noncommodity goods and services inflation remains weak,
there may be continued scope for accommodative
monetary policy. In 2020, there was little evidence of abroad-based increase in non-commodity inflation in LICs,
although this could rapidly change (figure B4.2.1.C). In
LICs where the economic recovery from the pandemic isfurther advanced, or where there appears to be a broadbased or persistent increase in commodity prices,
authorities could consider monetary policy tightening.
Monetary policy independence and credibility. Inflationin LICs has fallen substantially in recent decades,
mirroring a broader decline in inflation in EMDEs moregenerally. Nevertheless, monetary policy transmission in
LICs remains limited (Mishra and Montiel 2013). LICs
could continue to improve monetary policy frameworks toprevent rises in inflation from becoming ingrained andpersistent. By stabilizing output fluctuations that
disproportionally hurt the poor, the adoption of a credible
monetary policy regime that maintains low and stableinflation may help reduce poverty and inequality (Romerand Romer 1999).
In part, historical falls in inflation in LICs were achieved
through reduced demand for deficit monetization as debt
burdens and deficits in LICs declined after the 1980s (Ha,Kose, and Ohnsorge 2019). Rising debt burdens and fiscal
deficits in LICs in the run-up to, and following, the
COVID-19 pandemic may increase risks that moneti-zation is pursued to a greater degree once again, in particular in an environment of rising global and domestic
interest rates. Average debt-to-GDP ratios in LICs
increased by 6 percentage points in 2020, while averagedebt-to-GDP ratios currently stand at nearly 70 percent.
While they are expected to gradually decline from 2021
onwards, further adverse shocks could result in rising
deficit financing requirements (World Bank 2021a).
Risks of food price subsidies and export restrictions.
Previous food price spikes led to large increases in poverty,
with the 2010-11 price spike estimated to have increased
the global number of those in poverty by 8.3 million(Laborde, Lakatos, and Martin 2019). The recent increasein agricultural commodity prices, a 37 percent annual
increase, is the largest since 2011 when inflation peaked at
39 percent. Even before the COVID-19 crisis, many LICs
imposed price controls on food products, although theshare of food subjected to controls in consumption baskets
is small (Guénette 2020). Many governments have turned
to subsidies and export restrictions to lower domestic foodprices in previous food price spikes; however, theseinsulating policies can often exacerbate global price spikes,
increasing the demand for food (subsidies) or reducing
their supply (export restrictions). In 2011, insulating
policies were estimated to have contributed 25-40 percentof the increase in global maize and wheat prices (Laborde,
Lakotos, and Martin 2019). Export restrictions imposed in2020 in South Asia contributed to logistical bottlenecks
and resulted in rising prices for key food staples for theregion as a whole (World Bank 2021c). Countercyclicalpurchases of nonperishable agricultural commodities when
prices are low, and targeted, rather than blanket subsidies,
are less likely to contribute to higher global food prices.
Measures to reduce food insecurity. To reduce the impactof rising food prices and the repercussion of COVID-19
for food security, a range of measures can be taken,
including scaling up social safety net programs andensuring the distribution of, and access to, food. Targetedsocial protection measures, such as cash and food transfers,
may mitigate the impacts of the pandemic on food security
with fewer adverse impacts on global food prices than priceand export controls. Such measures have been substantially
increased since the start of the pandemic in EMDEs andsome LICs (Gentilini et al. 2020). However, LICs may
face larger challenges than other EMDEs in delivering anddeveloping sources of revenue for these transfers, requiring
technical and financial assistance. International support for
improved logistical capabilities and to ensure the climate
resilience of local food supply can contribute to both nearand longer-term food security in LICs (IDA 2020).

G LO BAL EC O NO MIC P ROS P EC TS | J U NE 2021

inflation may rise even further if they are subject
to above-average depreciation pressures or foodprice increases.6
Consistent with the model-based inflation
forecasts, survey-based consumer price inflation
expectations suggest that global inflation is
expected to rise by about 1 percentage point in
2021, from its low rate in 2020 (figure 4.6). The
expected inflation rise is broad-based, in bothadvanced economies and EMDEs. It is also
anticipated for PPI inflation, although not forwage inflation: Consensus forecasts point to anincrease in global PPI inflation (defined as medianacross 9 countries) to about 4 percent in 2021
(from -1 percent in 2020; figure 4.6).7 Forecasts ofheadline CPI inflation by major central banks alsosuggest a moderate increase in inflation in 2021
(by 1.5 percentage points in G7 economies and1.2 percentage points in seven large EMDEs).
Finally, although the data are limited to a few
advanced economies, market-based inflation
expectations point to a similar conclusion: breakeven implied inflation (measured as the spreads
between nominal and real 5-year bond yields) has
risen moderately since April 2020 and recovered
to pre-pandemic level by January 2021.

CHAPTER 4

This points to longer-term structural factors in
depressing global inflation. Provided they continue
to exert their influence, these factors may also
dampen any post-pandemic uptick in inflation.
Well-anchored inflation expectations, greater pricetransparency, and growing automation may
continue to dampen inflation. In contrast, turning
demographic trends, stabilizing global value
chains, potential demand pressures, and weakerfiscal positions may increase inflation pressures.
•

Well-anchored inflation expectations. In
contrast to short-term inflation expectations,long-term inflation expectations have beenbroadly stable trough the pandemic andcontinue to forecast global, advancedeconomy, and EMDE inflation at 2.3, 1.8,
and 3.7 percent, respectively, half a decadefrom now (figure 4.7). Such robust anchoringof inflation expectations in part reflected theintroduction of more resilient macroeconomic
policy frameworks such as inflation targeting,fiscal rules, and greater exchange rate
flexibility in EMDEs (Ha, Kose, andOhnsorge 2019). The median EMDE
inflation target has remained steady at around
4 percent since the mid-2010s but the number
of EMDEs meeting their targets has risen (Haet al. 2019b). If, however, inflation expectations start de-anchoring from central banks’targets, inflation can rise in unexpected ways
in the medium-term (Armantier et al. 2021).

•

Greater price transparency. During the
pandemic, consumers have switched to online
shopping from in-store shopping. To theextent that e-retail helps increase pricetransparency and competition, this may
extend the downward pressure on prices(Charbonneau et al. 2017). If this priceadjustment stretches over several years, it may
appear to be disinflation. Conversely, growing
market power of online retailers may increase
profit margins and may mute any disinflation
effects from greater transparency (Charbonneau et al. 2017).

•

Automation. The pandemic may induce amove by firms to increase automation to lift
productivity and reduce their need to fill

Longer-term inflation prospects
The pandemic-induced global recession waspreceded by a decade of extremely low global
inflation (2 percent) as well as low advancedeconomy and EMDE inflation. This stands incontrast to previous global recessions when prerecession global inflation ranged from 6 percent(2008) to 16 percent (1975). This may accountfor the more muted inflation response in the 2020
global recession than in earlier ones.

6 A similar exercise conducted in January 2009 would haveyielded a forecast of a decline in EMDE inflation by 6.9 percentage
point for 2009, above the actual decline of 5.2 percentage points in2009. In some EMDEs, inflation may rise even further if they are
subject to above-average depreciation pressures or food pricepressures. A similar exercise conducted in January 2009 based on
January forecasts for output and oil prices would have yielded aforecast of a decline in EMDE inflation by 3.7 percentage point for
2009, also less than the actual decline of 5.2 percentage points in2009.
7 In contrast, global wage inflation (defined as median across 23
economies) is expected to remain broadly stable in 2020-22.

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FIGURE 4.7 Inflation expectations in 2008-10 and2020-21•

Demographics. Over the past five decades,
deflationary pressures demographic trends
have begun to wane; this could result in
inflationary pressures in the next few years.
Over the past three decades, the entry of
China and Eastern Europe into the world’s
trading system combined with rapid
population growth to limit input cost
increases and lower inflation (Goodhart andPradhan 2020). The disinflationary benefits
reaped from this process may, however, now
be at an inflection point as the share of theworking-age population stabilizes even in
EMDEs (World Bank 2018).

•

Unprecedented policy support. During the
pandemic, many central banks in advanced
economies resumed or expanded large-scaleasset purchases, and central banks in about
two dozen EMDEs launched asset purchaseprograms (Rebucci, Hartley, and iménez
2020; World Bank 2021a). The literature
generally suggests that monetary easing, bothconventional and unconventional, typically
boosts aggregate demand and inflation with alag of 1-3 years, with somewhat clearer
evidence for advanced economies than for
EMDEs (Ha, Kose, and Ohnsorge 2019;
World Bank 2021a).8 In addition, many
countries have put in place unprecedented
fiscal support programs (chapter 1; Miles andScott 2020). If these unprecedented policy
measures are not unwound before demandruns well ahead of potential output, inflation
could pick up. This inflation pickup could be
temporary once excess demand pressuresrecede, provided that inflation expectations
remain well-anchored.

•

Weak fiscal positions. Government fiscal
positions have deteriorated markedly since thestart of the pandemic and are unlikely to

Inflation expectations during 2020-21 fell less than during the global
financial crisis. Five-year-ahead inflation expectations have remained
stable throughout 2020-21.

A. Advanced-economy inflation
expectations: one year ahead

C. Advanced-economy inflation
expectations: five year ahead

B. EMDE inflation expectations: one
year ahead

D. EMDE inflation expectations: five
year ahead

Sources: Consensus Economics; World Bank.
Note: Median short-term (A, B) or long-term (C, D) inflation expectations among 33 advanced
economies (A, C) and 51 EMDEs (B, D). Shaded areas (t = 0) indicate the outbreak of COVID-19
pandemic (March 2020) and the Global Financial Crisis (September 2008).

vacancies as job markets tighten in therecovery (Ding and Molina 2020; Leduc and
Liu 2020b). This may continue and deepen along-term trend in advanced economies,
where increased automation and labor market
flexibility may have held down wage growthover the past decade (Haldane 2018, 2021).
•

Global value chains. Global value chains havecontributed to lower inflation through greater
competition (Andrews, Gal, and Witheridge
2018; de Soyres and Franco 2019). Over the
past decade, maturing global value chainsappear to have contributed to slowing trade
growth (chapter 3; World Bank 2020d). If
global value chains were to outright reshore
rather than relocate to other countries, this
could reverse some of the disinflationarypressures over the past several decades.

8 While the design of unconventional monetary policy after the
global financial crisis and global recession of 2009 meant that most of
the injections remained within the banking system in the form ofexcess reserves and did not filter through to the broader money
aggregates that matter for inflation, in the COVID-induced
recession, measures have instead taken the form of injecting support
that raised the broader measures of money (Goodhart and Pradhan2020).

G LO BAL EC O NO MIC P ROS P EC TS | J U NE 2021

return to pre-pandemic levels in the next two
years (chapter 1). The average EMDE willcontinue to run a fiscal deficit in excess of 3
percent of GDP in 2022 and 2023; EMDE
government debt has risen to a record high of
66 percent of GDP in 2020. Several EMDEs
have implemented asset purchases that may
further tighten links between fiscal andmonetary policy. Where such purchases
continue to grow and fiscal positions are
weak, central banks may be subject to politicalpressure to ease government financing
conditions, deepening perceptions of monetary financing of fiscal deficits and further
skewing secondary markets (Mandelman
20201; World Bank 2021a). Thesedevelopments could further increase pricepressures and de-anchor long-run inflation
expectations.

Policy implications
Inflation has rebounded quickly from an
unusually muted decline during the global
recession of 2020, despite this recession being thedeepest since the Second World War. This has
reflected the rapid rebound in aggregate demand,
supported by unprecedented macroeconomic
policy measures.
Model-based forecasts and inflation expectations
point to a short-term increase in inflation of justover 1 percentage point. For virtually all advanced
economies and about one-half of EMDEs, anincrease of this magnitude would leave inflation
within target ranges but, for another one-half of
EMDEs, it would raise inflation above target
ranges. Over the longer-term, however, wellanchored long-term inflation expectations point tocontinued low and stable inflation. As long as
expectations remain well-anchored and any
inflation increase—even above target ranges—istemporary, there may not be a need for amonetary policy response.
The short-term increase in inflation might extend
over the longer term if policy makers are unable tokeep inflation expectations anchored. Structuralforces—such as demographics, growing globalization, and improvements in policy frameworks—

CHAPTER 4

supported disinflation over the past decade.
However, if the recovery from the pandemic
coincides with a turning point in some of theseforces, the expected inflation pickup in 2021 may
extend and, in EMDEs, could risk de-anchoring
inflation expectations. Concerns over poorly
anchored inflation expectations and the possibilityof permanently higher inflation may compel
EMDE central banks to tighten monetary policy
earlier, or more strongly, than warranted by their
cyclical positions.
Similar policy responses may also become
necessary in some EMDEs if concerns about
advanced-economy inflation prospects causes
investors to reassess inflation risks and result in asudden increase in global borrowing costs. In
EMDEs with flexible exchange rates and limited
financial vulnerabilities to exchange rate movements, currency depreciation may help buffer
some of the impact of tightening financial
conditions on activity (Gourinchas 2018). In
other EMDEs, however, financial stability
concerns may force central banks to tightenmonetary policy more than warranted by thestrength of their economies’ recovery. In part due
to concerns about financial stability, a number of
EMDE central banks that had implemented
expansionary monetary policy in 2020 have begun
to tighten policy in 2021.
Anchoring inflation expectations will be critical inpreserving central banks’ room to maneuver evenduring periods of financial stress. To achieve this,several policy options are available.
•

Monetary, fiscal, and macroprudential policies.
In inflation-targeting EMDEs with large
economic slack and below-target inflation,monetary easing and fiscal support can help
the recovery gain traction and raise inflation
towards the target. In EMDEs where theeconomic recovery from the pandemic isfurther advanced, a more nuanced design ofmonetary policy will be necessary. While it
may be premature to withdraw monetary andfiscal support, it would be prudent to prepare
now for the possibility of future inflation risksmaterializing, especially those related to
exchange market disruptions. Central banks
can embark on an opportunistic buildup of

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CHAPTER 4

foreign exchange reserves, heighten foreign
currency risk monitoring, and strengthen
macroprudential policies in anticipation of
possible capital outflows once advanced
economies begin to withdraw accommodative
policies.
••

Central bank transparency. Better-anchoredinflation expectations will help stabilize
inflation over the next few years. To minimize
the extent to which ﬂuctuations in energy andfood prices will spill over to headline inﬂation
and aﬀect household and corporate inﬂation
expectations, central banks will need to clearlycommunicate their inﬂation target andimprove policy transparency (box 4.2;
Baldwin and di Mauro 2020). Enhancing
central bank transparency help anchor
inﬂation expectations (Gelos, Rawat, and Ye
2020; Kose et al. 2019). In EMDEs that
employ unconventional policies, including
asset purchase programs, forward guidance,transparent objectives and operational details
can help maintain investor conﬁdence (WorldBank 2021a).
Ensure accurate measurement of inflation. Sharpchanges in the composition of consumer
spending, such as that took place during the
pandemic, may distort inﬂation estimates(Cavallo 2020).9 Many prices have become
unobservable, either because the shops areclosed or because ﬁeld collection is notpossible during the lockdown. Supply
disruptions may create perceptions of scarcity,even if not accompanied by actual priceincreases (Baker et al. 2020; Coibion,
Gorodnichenko, and Weber 2020). A newchallenge is the collection of prices for an
increasing number of services that are oﬀered
digitally or remotely. Central banks may need

9 Using data from credit and debit transactions in the UnitedStates to update the official basket weights and estimate the impact
on the CPI, Cavallo (2020) finds that the “COVID inflation,” whichreflected changes in consumption baskets after the pandemic, could
have been higher than the official CPI for both headline and core
indices in 2020. In addition, by applying the methodology to 17
other countries, the study also finds that, official CPI inflation after
the pandemic could have been underestimated by 0.4 percentage
point on average in 13 economies, while, in five countries, the official
inflation could have been overestimated by 0.3 percentage point.

G LO BAL EC O NO MIC P ROS P EC TS | J U NE 2021

to consider the possibility that actual inﬂationis considerably higher or lower than oﬃcial
estimates and avoid policy overshoots thatmight result (Lane 2020; Tenreyro 2020).
Statistical agencies could develop a supplementary index whose weights reﬂect new
spending patterns emerging as a result of thepandemic to give policy makers a moreaccurate picture of the prices that consumers
are currently paying (Reinsdorf 2020).

ANNEX 4.1 Methodology
and database
This annex presents a novel factor-augmented
vector autoregression (FAVAR) model. The
empirical framework is based on recent studies
that employ standard sign-restricted VAR models
to explore the drivers of global inflation(Charnavoki and Dolado 2014; Ha et al. 2019c),
or more generally, the Philips-curve framework(Forbes 2019). However, it deviates from theseapproaches in three ways to accommodate thecircumstances of the 2020 pandemic.
First, the model employs higher frequency(monthly) data rather than quarterly or annual
data, to minimize the concerns over theendogeneity among variables. The use of monthly
data is particularly important when the pace ofrecessions and recoveries differs. That said,
monthly data is available only for a smaller set ofcountries for services activity. Therefore, theexercise with monthly data relies on industrial
production series, which rebounded faster thanservices from the global recession of 2020 (box1.4). For the historical comparison with global
recessions before 2001, when sufficiently
comprehensive monthly data is unavailable, themodel employs quarterly GDP data. The main
findings for the comparison between the global
recession of 2020 and earlier ones are consistent,
regardless of the choice of monthly or quarterly
data.
Second, on top of the standard sign restrictions,an additional set of narrative restrictions is
imposed for the periods of large oil priceG LO BAL EC O NO MIC P ROS P EC TS | J U NE 2021

fluctuations. The sign restrictions are notsufficient to identify the structural shocks, inparticular in the presence of multiple large shocks.
Third, the model allows for time-varying volatility
in the global variables.
Model specification
The model consists of three global variables:
global inflation, global output growth, and oil
price growth. All variables are detrended such that,
effectively global output proxies the output gap.
Global output growth and global inflation areproxied by the global industrial production
growth and global inflation factors estimatedseparately using the following dynamic factor
models:CHAPTER 4

introducing heteroskedasticity (Carriero et al.
2019).10
Identification of shocks
Sign restrictions. The chapter follows themethodology in Charnavoki and Dolado (2014)
and Ha et al. (2019c) in using sign restrictions to
identify the global shocks.11 Postulating that B-10 asa recursive structure such that the reduced form
errors (ut) can be decomposed according to
ut = B-10 ε t , as follows:utY , global   + − +   εGlobalDemandt OilPrice   OilPriceut =  + + +   εtu π, global   + + −   εGlobalSupply 
 t
 t
 


Yti = βglobal ƒtY,global + etY,i•A positive global demand shock is assumed toincrease global output growth, global inflation, and oil price growth.

•

A positive global non-oil supply shock (hereafter“global supply shock”) is assumed to raise global
output and oil price growth but reduce global
inflation.

•

A positive oil price shock is defined as raisingoil prices and global inflation but depressing
global output growth.

πti = βglobal ƒtπ,global + etπ,iwhere Yti and πti are output growth and inflationin country i in month t, respectively, while ƒtπ,globaland ƒtY,global are the global factors for inflation andoutput growth in month t, respectively. In its
structural form, the FAVAR model is representedby:L

Bo Z t = α +  Bi Z t − i + εti =1

where εt is a vector of orthogonal structural
innovations, and Zt consists of global inﬂation,
global output growth, and oil price growth. The
vector εt consists of a shock to the global supply of
goods and services (“global supply shock”), a shockto the global demand for goods and services(“global demand shock”), and a shock to oil prices(“oil price shock”).
While the traditional VAR model assumes that thevariance-covariance matrix of residuals areconstant over time, this assumption could be
problematic in this analysis, given the exceptionally large macroeconomic volatility induced by the
COVID-19 pandemic (Lenza and Primiceri 2020;
Primiceri and Tambalotti 2020). To resolve theissue, the model assumes stochastic volatility ofstructural shocks—the residuals are independently but not identically distributed across time.
Their variance-covariance is allowed to be periodspeciﬁc, hence rendering volatility stochastic andNarrative restrictions. Since oil price shocks are
the main drivers of variations in global inflation,
the identification of oil price shocks deserves
further robustness checks. In particular, similar to
Antolín-Díaz Rubio-Ramírez (2018), theseidentified oil price shocks (or historical decompositions of the shocks) can further be constrained
to ensure that they agree with the establishednarrative account of historical episodes. The
narrative sign restrictions are imposed byconsidering the subset of successful draws inBayesian estimation that result in negative oil
price shocks (or negative historical contributions

10 As a robustness check, the conventional model with fixed shock
variances is estimated.
11 See also Melolinna (2015) and Gambetti, Pappa, and Canova(2005) for the identification. Note that Kilian and Murphy (2012)
argue that sign restrictions may not in all instances correctly identify
shocks. The narrative restrictions used here help the identification.

153

154

CHAPTER 4

to oil prices) during key historical episodes since2000 identified in Baffes et al. (2015) and
Wheeler et al. (2020):•

Structural oil price shocks are negative inJanuary 2015 and March 2020.

•

Historical contributions of oil price shocks tooil prices are negative in January 2015 andMarch 2020.

•

Historical contributions of oil price shocks tooil prices are more sizeable (in absolute values)
than other global shocks in January 2015.

Bayesian estimation
The model is estimated by using monthly datawith four lags, as is standard in the literature. In
the Bayesian estimation, the estimation firstsearches for 10,000 successful draws from at least
15,000 iterations with 5,000 burn-ins; the results
reported are based on the median of these 10,000
successful draws, along with 16-84 percent
confidence intervals. The estimation process isstandard Gibbs sampling except that the volatilityof residuals is endogenously determined.
To reflect a sudden change in the volatility invariables around global recessions and oil priceshocks, stochastic volatility is assumed to haverandom inertia—this introduces an extension of
the standard stochastic volatility model by turning
it into an endogenous variable integrated to theBayesian estimation process.12 In the model, theinertia of stochastic volatility is endogenously
estimated, allowing for variable-specific inertia(Cogley and Sargent 2005).

G LO BAL EC O NO MIC P ROS P EC TS | J U NE 2021

the global common factor of month-on-month,seasonally adjusted industrial production growth.
Global inflation is defined as the global common
factor of month-on-month headline CPI inflation.
The estimation is repeated using core inflationand producer price index inflation, similarly
defined. Oil price growth is the month-on-month
growth rate of nominal oil prices (average ofDubai, West Texas Intermediate, and Brent).
The sample for the quarterly estimation includes
data for up to 35 advanced economies and 52
EMDEs for 1970-2020. Inflation is defined as thecommon factor of quarter-on-quarter detrended
CPI inflation; oil price growth is defined asquarter-on-quarter nominal oil price changes;
output growth is defined as the common factor ofquarter-on-quarter real GDP growth.
Robustness exercises
Since the FAVAR estimation in this chapter rests
on various assumptions about the relationships
among endogenous variables, several robustness
checks on the assumptions are performed. The
main results are robust to the following changes:•

Alternative frequency of data (quarterly
instead of monthly) and output growth (GDPinstead of industrial production);•

Alternative measures of global inﬂation andglobal output in the estimation: (i) global
inﬂation and output factors estimated with an
identical group of countries and (ii) median
output growth and inﬂation rates among
countries;•

Alternative measures of oil prices: real oil
prices and nominal energy prices;•A standard VAR model speciﬁcation as analternative to the stochastic volatility model.

Database
The sample for the monthly estimation includes
data for up to 30 advanced economies and 55
EMDEs for 2001-2021. Global output growth isConditional forecast of global inflation
12 The standard stochastic volatility components model can have
two limitations. First, the value of the autoregressive coefficient has tobe predetermined. For instance, volatility in GDP growth may
increase during a period of crisis, but it will clearly return to a lower,
long-run value once the crisis is over. Second, the inertia in volatility
is assumed to be common to all the variables included in the model.

Global inflation in 2021 is forecast conditional on
the FAVAR estimates over 2001-20 and thebaseline forecast scenario of chapter 1. In theestimation, quarterly data are employed to directlyreflect GDP growth (instead of industrial

G LO BAL EC O NO MIC P ROS P EC TS | J U NE 2021

production) and to reduce the degree of
uncertainty in the forecasting. Median draws and16-84 percentile are reported. The exercise
suggests that global inflation may rise by 1.4
percentage points in 2021 globally, 1.5 percentage
points in EMDEs and 1.3 percentage points inadvanced economies.
Had a similar exercise been conducted in January
2009, based on forecasts developed in the January
2009 edition of the Global Economic Prospects
report, it would have yielded a forecast of a decline
in global inflation by 1.7 percentage points for
2009—considerably less than the actual decline inglobal inflation of 4.5 percentage points in 2009.
The steeper-than-forecast actual inflation decline
in part reflected a more severe-than-forecast global
recession, in which global growth was -1.8 percent
instead of the anticipated 0.9 percent, and lower-

CHAPTER 4

155

than-expected oil prices, which declined to $61.8
per barrel in 2009 instead of the anticipated $74.5
per barrel (World Bank 2009).
A forecast exercise conducted in 2011 based on
the baseline scenario presented in the January
2011 edition of the Global Economic Prospects
report, would have yielded a predicted upturn inglobal inflation by 1.3 percentage points in 2011,that was broadly in line with actual inflation
outturns, followed by an inflation decline of 1.4
percentage point in 2012 that was also broadly inline with actual outturns (World Bank 2011b).
The exercise would have yielded a forecast of adecline in advanced-economy inflation by 0.7
percentage point for 2009, again considerably lessthan the 3.4 percentage point decline in inflation
between 2008 and 2009 that actually materialized.

TABLE 4.1 LICs with highest food insecure populations
Country

Population with high food insecurity

Drivers (additional to high global food prices)

Congo, Dem. Rep.

21.8M

Conflict and violence; economic shocks and COVID-19 disruption; weather
extremes; agricultural pests and diseases.

Republic of Yemen

13.5M

Conflict and violence; economic shocks and COVID-19 disruption; Weather
extremes.

Afghanistan

13.2M

Conflict and violence; economic shocks and COVID-19 disruption; Weather
extremes.

Syrian Arab Republic

12.4M

Conflict and violence; economic shocks and COVID-19 disruption; weather
extremes.

Sudan

9.6M

Conflict and violence; economic shocks and COVID-19 disruption; weather
extremes.

Ethiopia

8.6M

Conflict and violence; economic shocks and COVID-19 disruption; weather
extremes; agricultural pests and diseases.

South Sudan

6.5M

Conflict and violence; economic crisis; economic shocks and COVID-19
disruption; weather extremes.

Zimbabwe

4.3M

Economic shocks and COVID-19 disruption; weather extremes; agricultural pests
and diseases.

Haiti

4.1M

Conflict and violence; economic crisis; economic shocks and COVID-19
disruption; weather extremes.

Source: FSIN and GNAFC (2021).
Note: Number of people in Integrated Food Security Phase Classification (IPC) and Cadre Harmonise (CH) Phase 3 or above in 2020.

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G LO BAL EC O NO MIC P ROS P EC TS | J U NE 2021

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Washington, DC: World Bank.
World Bank. 2021c. South Asia Economic Focus: South
Asia Vaccinates. Washington, DC: World Bank.
WFP (World Food Program) and FAO (Food andAgriculture Organization of the United Nations).
2021. “Hunger Hotspots. FAO-WFP Early Warnings
on Acute Food Insecurity.” March to July 2021
outlook. Rome: WFP and FAO.

STATISTICAL
APPENDIX

G LO BAL EC O NO MIC P ROS P EC TS | J U NE 2021

S TATIS TICAL APP ENDIX

163

Real GDP growth
Annual estimates and forecasts 1(Percent change)

Quarterly estimates 2(Percent change, year-on-year)

2018

2019

2020e 2021f

2022f

2023f

19Q4

20Q1

20Q2

20Q3

20Q4

21Q1e

World

3.2

2.5

-3.5

5.6

4.3

3.1

2.4

-1.6

-9.1

..

..

..

Advanced economies

2.3

1.6

-4.7

5.4

4.0

2.2

1.4

-1.1

-11.0

-3.7

-3.0

..

United States
Euro area
Japan

3.0
1.9
0.6

2.2
1.3
0.0

-3.5
-6.6
-4.7

6.8
4.2
2.9

4.2
4.4
2.6

2.3
2.4
1.0

2.3
1.0
-1.3

0.3
-3.3
-2.2

-9.0
-14.6
-10.2

-2.8
-4.1
-5.5

-2.4
-4.9
-1.0

0.4
-1.8
-1.8

4.6

3.8

-1.7

6.0

4.7

4.4

3.9

-2.4

-6.1

..

..

..

6.5
7.5
6.8
3.5
5.2
3.8

5.8
7.1
6.0
-0.4
5.0
3.9

1.2
-3.1
2.3
-19.0
-2.1
-1.9

7.7
4.0
8.5
2.6
4.4
3.0

5.3
5.2
5.4
8.2
5.0
2.6

5.2
6.0
5.3
6.9
5.1
2.5

5.6
..
5.8
..
5.0
..

-5.5
..
-6.8
..
3.0
..

1.1
..
3.2
..
-5.3
..

3.4
..
4.9
..
-3.5
..

4.9
..
6.5
..
-2.2
..

15.3
..
18.3
..
-0.7
..

Lao PDR

6.3

5.5

0.4

4.0

4.6

4.7

..

..

..

..

..

..

Malaysia
Marshall Islands 3

4.8
3.3

4.3
6.6

-5.6
-4.5

6.0
-1.0

4.2
3.0

4.4
2.0

3.7
..

0.7
..

-17.2
..

-2.7
..

-3.4
..

-0.5
..

Micronesia, Fed. Sts. 3

0.2

1.2

-1.5

-3.5

2.5

1.0

..

..

..

..

..

..

Mongolia
Myanmar 3 6
Nauru 3
Palau 3
Papua New Guinea
Philippines

7.0
6.4
5.7
4.1
-0.3
6.3

5.0
6.8
1.0
-4.2
5.9
6.0

-5.4
1.7
0.7
-10.0
-3.9
-9.6

5.9
-10.0
1.3
-4.0
3.5
4.7

6.1
..
0.9
12.0
4.2
5.9

7.0
..
1.0
6.0
2.4
6.0

-0.7
..
..
..
..
6.6

-10.9
..
..
..
..
-0.7

-8.8
..
..
..
..
-17.0

-2.7
..
..
..
..
-11.6

-0.9
..
..
..
..
-8.3

15.5
..
..
..
..
-4.2

Samoa 3

-2.2

3.5

-3.5

-7.7

5.6

4.9

..

..

..

..

..

..

Solomon Islands
Thailand
Timor-Leste
Tonga 3
TuvaluVanuatu
Vietnam

3.9
4.2
-1.1
0.3
4.3
2.8
7.1

1.2
2.3
1.8
0.7
4.1
3.0
7.0

-5.0
-6.1
-7.3
-1.5
-0.5
-10.0
2.9

2.0
2.2
1.8
-3.0
3.0
4.0
6.6

4.5
5.1
3.7
2.3
4.0
3.9
6.5

4.3
4.3
4.3
2.8
3.0
3.3
6.5

..
1.3
..
..
..
..
7.0

..
-2.1
..
..
..
..
3.7

..
-12.1
..
..
..
..
0.4

..
-6.4
..
..
..
..
2.6

..
-4.2
..
..
..
..
4.5

..
-2.6
..
..
..
..
4.5

3.5

2.7

-2.1

3.9

3.9

3.5

4.0

2.2

-8.8

-1.4

-0.4

..

4.1
5.2
1.5
3.1
3.7
3.1
2.8
4.9
5.4

2.2
7.6
2.2
1.4
2.8
3.7
2.9
5.0
4.6

-3.3
-7.6
-4.3
-0.9
-4.3
-4.2
-8.0
-6.1
-5.0

4.4
3.4
2.8
-2.2
2.8
2.6
5.5
6.0
6.0

3.7
4.3
3.9
1.9
3.5
3.3
6.2
5.0
4.7

3.7
5.3
3.4
1.2
3.7
3.4
5.7
5.0
4.3

0.0
7.6
..
2.2
1.9
3.2
2.3
4.6
4.3

-2.3
4.2
..
-0.2
2.3
1.8
0.9
2.3
2.1

-10.6
-13.5
..
-3.3
-9.0
-8.5
-14.4
-13.2
-13.3

-2.8
-8.7
..
-0.2
-6.3
-4.2
-10.1
-5.6
-4.6

3.0
-8.7
..
-0.2
-3.8
-4.7
-7.2
-6.8
-3.5

..
-3.3
..
..
..
..
-0.7
..
-2.1

Emerging market and developing economies
East Asia and PacificCambodia
China
Fiji
Indonesia
Kiribati

Europe and Central Asia
Albania
Armenia
Azerbaijan
BelarusBosnia and Herzegovina 2
Bulgaria
Croatia
Georgia
Hungary
Kazakhstan

4.1

4.5

-2.6

3.2

3.7

4.8

5.0

2.7

-6.0

-4.7

-2.1

..

KosovoKyrgyz Republic
Moldova
Montenegro 5

3.8
3.8
4.3
5.1

4.9
4.6
3.6
4.1

-6.9
-8.6
-7.0
-15.2

4.0
3.8
3.8
7.1

4.5
4.3
3.7
4.5

4.1
4.5
3.8
3.5

..
..
0.2
..

..
..
0.9
..

..
..
-14.0
..

..
..
-9.8
..

..
..
-3.3
..

..
..
..
..

North Macedonia
Poland

2.9
5.4

3.2
4.7

-4.5
-2.7

3.6
3.8

3.5
4.5

3.4
3.9

3.3
4.0

0.9
2.0

-14.9
-7.9

-3.3
-2.0

-0.7
-2.7

..
-1.4

Romania
Russian Federation

4.5
2.8

4.1
2.0

-3.9
-3.0

6.0
3.2

4.5
3.2

3.9
2.3

4.3
2.9

2.4
1.4

-10.0
-7.8

-5.6
-3.5

-1.4
-1.8

-0.2
-1.0

SerbiaTajikistan

4.4
7.6

4.2
7.4

-1.0
4.5

5.0
5.3

3.7
5.6

3.9
6.0

6.3
..

5.2
..

-6.3
..

-1.4
..

-1.0
..

1.7
..

TurkeyUkraineUzbekistan

3.0
3.4
5.4

0.9
3.2
5.8

1.8
-4.0
1.6

5.0
3.8
4.8

4.5
3.1
5.5

4.5
3.1
5.8

6.4
1.4
..

4.5
-1.2
..

-10.3
-11.2
..

6.3
-3.5
..

5.9
-0.5
..

7.0
-2.0
..

164

S TATIS TICAL APP ENDIX

G LO BAL EC O NO MIC P ROS P EC TS | J U NE 2021

Real GDP growth (continued)
Annual estimates and forecasts 1(Percent change)
2018

2019

1.8

0.9

-6.5

5.2

2.9

Argentina

-2.6

-2.1

-9.9

6.4

1.7

Bahamas, The

3.0

1.2

-16.2

2.0

Barbados

-0.6

-0.1

-18.0

Belize2.9

1.8

Bolivia

4.2

Latin America and the Caribbean

2020e

2021f

2022f

Quarterly estimates 2(Percent change, year-on-year)
2023f

19Q4

20Q1

20Q2

20Q3

20Q4

21Q1e

2.5

0.8

-1.0

-15.4

..

..

..

1.9

-1.1

-5.2

-19.0

-10.1

-4.3

..

8.5

4.0

..

..

..

..

..

..

3.3

8.5

4.8

..

..

..

..

..

..

-14.1

1.9

6.4

4.2

-2.2

-6.3

-23.8

-12.8

-13.0

..

2.2

-8.8

4.7

3.5

3.0

1.1

0.6

-21.7

..

..

..

Brazil

1.8

1.4

-4.1

4.5

2.5

2.3

1.6

-0.3

-10.9

-3.9

-1.1

1.0

Chile

3.7

0.9

-5.8

6.1

3.0

2.5

-2.0

0.2

-14.2

-9.0

0.0

0.3

Colombia

2.6

3.3

-6.8

5.9

4.1

4.0

3.3

0.6

-15.7

-8.4

-3.6

1.1

Costa Rica

2.1

2.2

-4.1

2.7

3.4

3.1

4.1

1.0

-8.4

-6.4

-2.7

..

Dominica

2.3

3.6

-10.0

1.0

3.0

2.5

..

..

..

..

..

..

Dominican Republic

7.0

5.1

-6.7

5.5

4.8

4.8

5.8

0.0

-16.9

-7.2

-2.9

..

Ecuador

1.3

0.1

-7.8

3.4

1.4

1.8

-1.4

-1.9

-12.8

-9.1

-7.2

..

El Salvador

2.4

2.6

-7.9

4.1

3.1

2.4

3.0

0.1

-19.8

-10.0

-2.1

..

Grenada

4.1

1.9

-12.6

3.5

5.0

4.9

..

..

..

..

..

..

Guatemala

3.3

3.9

-1.5

3.6

4.0

3.8

4.1

1.2

-8.9

-1.4

3.0

..

Guyana

4.4

5.4

43.5

20.9

26.0

23.0

..

..

..

..

..

..

Haiti 3

1.7

-1.7

-3.3

-0.5

1.5

2.0

..

..

..

..

..

..

Honduras

3.8

2.7

-9.0

4.5

3.9

3.8

2.6

-1.3

-19.2

-7.9

-7.7

..

Jamaica 2

1.9

0.9

-10.0

3.0

3.8

3.2

0.0

-2.4

-18.4

-10.6

-8.3

..

Mexico

2.2

-0.2

-8.3

5.0

3.0

2.0

-0.7

-1.3

-18.7

-8.7

-4.5

-3.6

Nicaragua

-3.4

-3.7

-2.0

0.9

1.2

1.4

1.2

1.1

-6.3

-1.0

-1.9

..

Panama

3.6

3.0

-17.9

9.9

7.8

4.9

3.4

0.4

-38.2

-23.6

-10.9

..

Paraguay

3.2

-0.4

-0.6

3.5

4.0

3.8

3.2

4.3

-6.7

-1.3

1.0

..

Peru

4.0

2.2

-11.1

10.3

3.9

3.5

1.9

-3.7

-30.0

-9.0

-1.7

3.8

St. Lucia

2.6

1.7

-20.4

2.6

11.5

8.1

..

..

..

..

..

..

St. Vincent and the Grenadines

2.2

0.5

-3.8

-6.1

8.3

6.1

..

..

..

..

..

..

Suriname

2.6

0.3

-14.5

-1.9

0.1

1.3

..

..

..

..

..

..

Uruguay

0.5

0.4

-5.9

3.4

3.1

2.5

-0.5

-1.9

-12.9

-5.8

-2.9

..

0.6

0.6

-3.9

2.4

3.5

3.2

1.2

-1.0

-6.6

..

..

..

Algeria

1.2

0.8

-5.5

3.6

2.3

1.6

0.2

-3.9

..

..

..

..

Bahrain

2.0

1.9

-5.4

3.3

3.2

3.2

-0.3

-1.7

-9.0

-6.9

-5.5

..

Djibouti

8.4

7.8

0.5

5.5

6.0

6.2

..

..

..

..

..

..

Egypt, Arab Rep. 3

5.3

5.6

3.6

2.3

4.5

5.5

5.6

5.0

-1.7

0.7

2.0

..

Iran, Islamic Rep. 3

-6.0

-6.8

1.7

2.1

2.2

2.3

1.8

-6.8

-2.9

4.9

3.4

..

Iraq

-1.2

4.4

-10.4

1.9

8.4

4.2

..

..

..

..

..

..

Jordan

1.9

2.0

-1.6

1.4

2.2

2.3

2.1

1.3

-3.6

-2.2

-1.6

..

Middle East and North Africa

Kuwait

1.2

0.4

-5.4

2.4

3.6

2.8

-1.1

-1.0

-13.4

-11.5

..

..

Lebanon 6

-1.9

-6.7

-20.3

-9.5

..

..

..

..

..

..

..

..

Libya 6

15.1

2.5

-31.3

66.7

..

..

..

..

..

..

..

..

Morocco

3.1

2.5

-7.1

4.6

3.4

3.7

2.3

-0.1

-15.1

-7.2

-6.0

..

Oman

0.9

-0.8

-6.3

2.5

6.5

4.2

..

..

..

..

..

..

Qatar

1.2

0.8

-3.7

3.0

4.1

4.5

0.2

0.0

-6.1

-4.6

-3.9

..

Saudi Arabia

2.4

0.3

-4.1

2.4

3.3

3.2

-0.3

-1.0

-7.0

-4.6

-3.9

-3.3

Tunisia

2.9

0.9

-8.8

4.0

2.6

2.2

0.9

-2.1

-21.3

-5.7

-6.1

-3.0

United Arab Emirates

1.7

4.8

-6.1

1.2

2.5

2.5

0.8

-0.3

-7.4

..

..

..

West Bank and Gaza

1.2

1.4

-11.5

3.5

3.6

3.7

-1.4

-3.5

-19.5

-10.8

-12.2

..

G LO BAL EC O NO MIC P ROS P EC TS | J U NE 2021

165

S TATIS TICAL APP ENDIX

Real GDP growth (continued)
Annual estimates and forecasts 1(Percent change)

South Asia

Quarterly estimates 2(Percent change, year-on-year)

2018

2019

2020e

2021f

2022f

2023f

19Q4

20Q1

20Q2

20Q3

20Q4

21Q1e

6.4

4.4

-5.4

6.8

6.8

5.2

3.3

2.8

-23.9

-7.1

0.3

..

Afghanistan

1.2

3.9

-1.9

1.0

2.6

3.0

..

..

..

..

..

..

Bangladesh 3 4

7.9

8.2

2.4

3.6

5.1

6.2

..

..

..

..

..

..

Bhutan 3 4

3.8

4.3

-0.8

-1.8

5.0

5.6

..

..

..

..

..

..

India 3 4

6.5

4.0

-7.3

8.3

7.5

6.5

3.3

3.0

-24.4

-7.4

0.5

1.6

Maldives

8.1

7.0

-28.0

17.1

11.5

8.3

9.3

-4.2

-51.8

-44.2

-30.5

..

Nepal 3 4

7.6

6.7

-2.1

2.7

3.9

5.1

4.7

2.7

4.4

1.1

-15.3

-4.6

Pakistan 3 4

5.5

2.1

-0.5

1.3

2.0

3.4

..

..

..

..

..

..

Sri Lanka

3.3

2.3

-3.6

3.4

2.0

2.1

1.6

-1.8

-16.4

1.3

1.3

..

2.7

2.5

-2.4

2.8

3.3

3.8

2.1

1.8

-10.2

-4.0

..

..

Angola

-2.0

-0.6

-5.2

0.5

3.3

3.5

..

..

..

..

..

..

Benin

6.7

6.9

2.0

5.0

6.0

6.5

..

..

..

..

..

..

Botswana

4.5

3.0

-7.9

6.9

4.3

4.1

1.7

2.7

-24.0

-6.0

-4.1

..

Burkina Faso

6.7

5.7

0.6

3.1

5.0

5.7

..

..

..

..

..

..

Burundi

1.6

1.8

0.3

2.0

2.5

3.0

..

..

..

..

..

..

Cabo Verde

4.5

5.7

-14.0

3.9

5.2

6.1

..

..

..

..

..

..

Cameroon

4.1

3.7

-2.1

2.1

2.7

3.8

..

..

..

..

..

..

Central African Republic

3.7

3.1

0.0

0.7

2.8

4.4

..

..

..

..

..

..

Chad

2.4

3.2

-0.9

1.0

2.5

2.9

..

..

..

..

..

..

Comoros

3.4

2.0

-0.5

0.2

2.2

4.2

..

..

..

..

..

..

Congo, Dem. Rep.

5.8

4.4

0.8

2.5

3.0

4.1

..

..

..

..

..

..

Congo, Rep.

-6.2

-3.5

-7.9

-0.1

2.3

3.1

..

..

..

..

..

..

Côte d'Ivoire

6.9

6.2

1.8

5.7

6.0

6.5

..

..

..

..

..

..

Equatorial Guinea

-6.4

-5.6

-4.9

2.4

-5.6

-2.3

..

..

..

..

..

..

Eritrea

13.0

3.7

-0.6

2.0

4.9

3.8

..

..

..

..

..

..

Eswatini

2.4

2.2

-3.1

1.3

1.1

1.5

..

..

..

..

..

..

Ethiopia 3

6.8

8.4

6.1

2.3

6.0

7.5

..

..

..

..

..

..

Gabon

0.8

3.9

-1.9

1.5

2.5

3.6

..

..

..

..

..

..

Gambia, The

7.2

6.1

0.0

3.5

5.5

7.0

..

..

..

..

..

..

Ghana

6.3

6.5

1.1

1.4

2.4

3.6

6.0

7.0

-5.7

-3.2

3.3

..

Guinea

6.2

5.6

4.7

5.5

5.2

5.2

..

..

..

..

..

..

Guinea-Bissau

3.8

4.6

-2.4

3.0

4.0

5.0

..

..

..

..

..

..

Kenya

6.3

5.4

-0.3

4.5

4.7

5.8

5.4

5.2

-5.5

-1.1

..

..

Lesotho

1.5

1.4

-5.8

2.9

3.1

3.2

-4.5

2.6

-21.5

-9.9

-15.3

..

Liberia

1.2

-2.3

-2.9

3.3

4.2

4.7

..

..

..

..

..

..

Madagascar

4.6

4.9

-4.2

2.0

5.8

5.4

..

..

..

..

..

..

Malawi

4.4

5.4

0.8

2.8

3.0

4.5

..

..

..

..

..

..

Mali

4.7

4.8

-2.0

2.5

5.2

5.0

..

..

..

..

..

..

Mauritania

2.1

5.9

-1.5

2.7

3.7

6.0

..

..

..

..

..

..

Mauritius

3.8

3.0

-15.6

3.6

5.9

4.3

..

..

..

..

..

..

Mozambique

3.4

2.3

-1.3

1.7

4.1

6.3

1.2

1.7

-3.5

-1.2

-1.8

0.1

Namibia

1.1

-1.6

-7.3

1.8

1.8

1.5

5.1

-2.7

-11.2

-11.8

-6.0

..

Niger

7.2

5.9

0.8

4.7

8.9

12.1

..

..

..

..

..

..

Nigeria

1.9

2.2

-1.8

1.8

2.1

2.4

2.5

2.0

-6.0

-3.1

0.0

0.4

Rwanda

8.6

9.4

-3.3

4.9

6.4

7.5

8.5

3.6

-12.4

-3.6

-0.7

..

São Tomé and Príncipe

2.9

1.3

3.1

2.7

3.5

4.0

..

..

..

..

..

..

Senegal

6.4

5.3

-0.7

3.1

4.9

8.9

..

..

..

..

..

..

Seychelles

3.8

5.3

-13.3

1.8

4.3

4.2

..

..

..

..

..

..

Sierra Leone

3.4

5.5

-2.2

3.0

3.7

4.0

..

..

..

..

..

..

Sub-Saharan Africa

166

S TATIS TICAL APP ENDIX

G LO BAL EC O NO MIC P ROS P EC TS | J U NE 2021

Real GDP growth (continued)
Annual estimates and forecasts1(Percent change)
2018

2019

2020e

Quarterly estimates2(Percent change, year-on-year)

2021f

2022f

2023f

19Q4

20Q1

20Q2

20Q3

20Q4

21Q1e

Sub-Saharan Africa (continued)
South Africa

0.8

0.2

-7.0

3.5

2.1

1.5

-0.5

0.4

-17.8

-6.2

-4.1

..

South Sudan 3

-3.5

-0.3

9.5

-3.4

1.5

3.0

..

..

..

..

..

..

Sudan

-2.3

-2.5

-3.6

0.4

1.1

2.6

..

..

..

..

..

..

Tanzania

5.4

5.8

2.0

4.5

5.5

6.0

..

..

..

..

..

..

Togo 7

4.9

5.3

0.7

3.4

4.6

5.0

..

..

..

..

..

..

Uganda 3

6.3

6.4

3.0

3.3

4.7

6.4

9.0

0.0

-6.1

-0.1

1.6

..

Zambia

3.5

1.4

-3.0

1.8

2.9

3.8

0.2

-0.3

-5.9

-3.1

-2.7

..

Zimbabwe

4.8

-8.1

-8.0

3.9

5.1

5.0

..

..

..

..

..

..

Sources: World Bank; Haver Analytics.
Note: e = estimate; f = forecast.
1. Aggregate growth rates calculated using GDP weights at average 2010-19 prices and market exchange rates.
2. Quarterly estimates are based on non-seasonally-adjusted real GDP, except for advanced economies, as well as Algeria, Ecuador, Morocco, Poland and Tunisia. Data for Bosnia andHerzegovina are from the production approach. Data for Timor-Leste represent non-oil GDP. Quarterly data for Jamaica are gross value added.
Regional averages are calculated based on data from the following economies.
East Asia and Pacific: China, Indonesia, Malaysia, Mongolia, the Philippines, Thailand, and Vietnam.
Europe and Central Asia: Albania, Armenia, Belarus, Bosnia and Herzegovina, Bulgaria, Croatia, Georgia, Hungary, Kazakhstan, Moldova, North Macedonia, Poland, Romania, the RussianFederation, Serbia, Turkey, and Ukraine.
Latin America and the Caribbean: Argentina, Belize, Bolivia, Brazil, Chile, Colombia, Costa Rica, the Dominican Republic, Ecuador, El Salvador, Guatemala, Honduras, Jamaica, Mexico,
Nicaragua, Panama, Paraguay, Peru, and Uruguay.
Middle East and North Africa: Bahrain, the Arab Republic of Egypt, the Islamic Republic of Iran, Jordan, Kuwait, Morocco, Qatar, Saudi Arabia, Tunisia, the United Arab Emirates, and WestBank and Gaza.
South Asia: India, Maldives, Nepal and Sri Lanka.
Sub-Saharan Africa: Botswana, Ghana, Kenya, Lesotho, Mozambique, Namibia, Nigeria, Rwanda, South Africa, Tanzania, Uganda, and Zambia.
3. Annual GDP is on fiscal year basis, as per reporting practice in the country.
4. GDP data for Pakistan are based on factor cost. For Bangladesh, Bhutan, Nepal, and Pakistan, the column labeled 2019 refers to FY2018/19. For India, the column labeled 2018 refers to
FY2018/19.
5. Quarterly data are preliminary.
6. Forecasts beyond 2021 are excluded due to a high degree of uncertainty.
7. For Togo, growth figures in 2018 and 2019 are based on pre-2020 rebasing GDP estimates.
To download the data in this table, please visit www.worldbank.org/gep.

G LO BAL EC O NO MIC P ROS P EC TS | J U NE 2021

S TATIS TICAL APP ENDIX

Data and Forecast Conventions
The macroeconomic forecasts presented in thisreport are prepared by staff of the Prospects
Group of the Equitable Growth, Finance andInstitutions Vice-Presidency, in coordination withstaff from the Macroeconomics, Trade, andInvestment Global Practice and from regional andcountry offices, and with input from regional
Chief Economist offices. They are the result of an
iterative process that incorporates data, macroeconometric models, and judgment.
Data. Data used to prepare country forecasts
come from a variety of sources. National Income
Accounts (NIA), Balance of Payments (BOP), andfiscal data are from Haver Analytics; the World
Development Indicators by the World Bank; theWorld Economic Outlook, Balance of Payments
Statistics, and International Financial Statistics by
the International Monetary Fund. Population
data and forecasts are from the United Nations
World Population Prospects. Country- andlending-group classifications are from the World
Bank. The Prospects Group’s internal databases
include high-frequency indicators such as industrial production, consumer price indexes,
emerging market bond indexes (EMBI), exchange
rates, exports, imports, policy rates, and stock
market indexes, based on data from Bloomberg,
Haver Analytics, IMF Balance of Payments
Statistics, IMF International Financial Statistics,
and J. P. Morgan.

Aggregations. Aggregate growth for the world andall sub-groups of countries (such as regions andincome groups) is calculated using GDP weights
at average 2010-19 prices and market exchange
rates of country-specific growth rates. Income
groups are defined as in the World Bank’sclassification of country groups.
Forecast process. The process starts with initialassumptions about advanced-economy growthand commodity price forecasts. These are used asconditioning assumptions for the first set ofgrowth forecasts for EMDEs, which are produced
using macroeconometric models, accounting
frameworks to ensure national account identities
and global consistency, estimates of spillovers
from major economies, and high-frequency
indicators. These forecasts are then evaluated toensure consistency of treatment across similar
EMDEs. This is followed by extensive discussions
with World Bank country teams, who conduct
continuous macroeconomic monitoring anddialogue with country authorities and finalize
growth forecasts for EMDEs. The Prospects
Group prepares advanced-economy and commodity price forecasts. Throughout the forecastingprocess, staff use macro-econometric models thatallow the combination of judgement and consistency with model-based insights.

167

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G LO BAL EC O NO MIC P ROS P EC TS | J U NE 2021

Global Economic Prospects: Selected Topics, 2015-21
Growth and Business Cycles
Economics of Pandemics
Regional macroeconomic implications of COVID-19
Lasting Scars of the COVID-19 Pandemic
Adding fuel to the fire: Cheap oil during the pandemic
How deep will the COVID-19 recession be?
Scenarios of possible global growth outcomesHow does informality aggravate the impact of COVID-19?
The impact of COVID-19 on global value chains
How do deep recessions affect potential output?
How do disasters affect productivity?
Reforms after the 2014-16 oil price plunge
The macroeconomic effects of pandemics and epidemics: A literature review
Informality
How does informality aggravate the impact of COVID-19?
Growing in the shadow: Challenges of informality
Linkages between formal and informal sectors
Regional dimensions of informality: An overview
Casting a shadow: Productivity in formal and informal firms
Under the magnifying glass: How do policies affect informality?
East Asia and Pacific
Europe and Central Asia
Latin America and the Caribbean
Middle East and North Africa
South Asia
Sub-Saharan Africa
Inflation
Emerging inflation pressures: Cause for alarm?
Low for how much longer? Inflation in low-income countries
Currency depreciation, inflation, and central bank independence
The great disinflation
Growth prospects
Global growth scenarios
The macroeconomic effects of pandemics and epidemics: A literature review
How deep will the COVID-19 recession be?
Lasting Scars of the COVID-19 Pandemic
Regional macroeconomic implications of COVID-19
Growth in low-income countries: Evolution, prospects, and policies
Long-term growth prospects: Downgraded no more?
Global output gap
Is the global economy turning the corner?
Potential growth
Global economy: Heading into a decade of disappointments?
How do deep recessions affect potential output in EMDEs?
Building solid foundations: How to promote potential growth
What is potential growth?
Understanding the recent productivity slowdown: Facts and explanations
Moving together? Investment and potential output
The long shadow of contractions over potential output
Productivity and investment growth during reforms
East Asia and Pacific
Europe and Central Asia
Latin America and the Caribbean
Middle East and North Africa
South Asia
Sub-Saharan Africa

June 2020, Special Focus
June 2020, chapter 3
June 2020, chapter 4June 2020, box 1.1
June 2020, box 1.3
June 2020, box 1.4
June 2020, box SF1
June 2020, box 3.1
June 2020, box 3.2
June 2020, box 4.1
June 2020, annex 3.1
June 2020, box 1.4
January 2019, chapter 3
January 2019, box 3.1
January 2019, box 3.2
January 2019, box 3.3
January 2019, box 3.4
January 2019, box 2.1.1
January 2019, box 2.2.1
January 2019, box 2.3.1
January 2019, box 2.4.1
January 2019, box 2.5.1
January 2019, box 2.6.1
June 2021, chapter 4
January 2020, Special Focus 2
June 2019, Special Focus 1.2
January 2019, box 1.1
January 2021, box 1.4
June 2020, annex 3.1
June 2020, box 1.1
June 2020, chapter 3
June 2020, Special Focus
June 2019, Special Focus 2.1
June 2018, box 1.1
January 2018, box 1.1
January 2021, chapter 3
June 2020, box 3.1
January 2018, chapter 3
January 2018, box 3.1
January 2018, box 3.2
January 2018, box 3.3
January 2018, box 3.4
January 2018, box 3.5
January 2018, box 2.1.1
January 2018, box 2.2.1
January 2018, box 2.3.1
January 2018, box 2.4.1
January 2018, box 2.5.1
January 2018, box 2.6.1

G LO BAL EC O NO MIC P ROS P EC TS | J U NE 2021

S E L E C T E D TO P I C S

Global Economic Prospects: Selected Topics, 2015-21
Growth and Business Cycles
Cross-border spillovers
Who catches a cold when emerging markets sneeze?
Sources of the growth slowdown in BRICS
Understanding cross-border growth spillovers

January 2016, chapter 3
January 2016, box 3.1
January 2016, box 3.2

Within-region spillovers
East Asia and Pacific
Europe and Central Asia

January 2016, box 3.3
January 2016, box 2.1.1
January 2016, box 2.2.1

Latin America and the Caribbean

January 2016, box 2.3.1

Middle East and North Africa
South Asia

January 2016, box 2.4.1
January 2016, box 2.5.1

Sub-Saharan Africa

January 2016, box 2.6.1

How do disasters affect productivity?
Fading promise: How to rekindle productivity growthJune 2020, box 3.2
January 2020, chapter 3

EMDE regional productivity trends and bottlenecks
Sectoral sources of productivity growth
Patterns of total factor productivity: A firm perspective
Debt, financial crises, and productivity

January 2020, box 3.1
January 2020, box 3.2
January 2020, box 3.3
January 2020, box 3.4

Productivity

Labor productivity in East Asia and Pacific: Trends and drivers
Labor productivity in Europe and Central Asia: Trends and drivers
Labor productivity in Latin America and the Caribbean: Trends and drivers
Labor productivity in Middle East and North Africa: Trends and drivers
Labor productivity in South Asia: Trends and drivers
Labor productivity in Sub-Saharan Africa: Trends and drivers
Investment slowdown
Investment: Subdued prospects, strong needs

January 2020, box 2.1.1
January 2020, box 2.2.1
January 2020, box 2.3.1
January 2020, box 2.4.1
January 2020, box 2.5.1
January 2020, box 2.6.1
June 2019, Special Focus 11

Weak investment in uncertain times: Causes, implications, and policy responses

January 2017, chapter 3

Investment-less credit booms
Implications of rising uncertainty for investment in EMDEs
Investment slowdown in China

January 2017, box 3.1
January 2017, box 3.2
January 2017, box 3.3

Interactions between public and private investment
East Asia and Pacific
Europe and Central Asia

January 2017, box 3.4
January 2017, box 2.1.1
January 2017, box 2.2.1

Latin America and the Caribbean
Middle East and North Africa

January 2017, box 2.3.1
January 2017, box 2.4.1

South Asia
Sub-Saharan Africa
Forecast uncertainty

January 2016, box 2.5.1
January 2016, box 2.6.1

Scenarios of possible global growth outcomes
Quantifying uncertainties in global growth forecasts

June 2020, box 1.3
June 2016, Special Focus 2

Having space and using it: Fiscal policy challenges and developing economies
Fiscal policy in low-income countries

January 2015, chapter 3
January 2015, box 3.1

What affects the size of fiscal multipliers?
Chile’s fiscal rule—an example of successNarrow fiscal space and the risk of a debt crisis

January 2015, box 3.2
January 2015, box 3.3
January 2015, box 3.4

Revenue mobilization in South Asia: Policy challenges and recommendations

January 2015, box 2.3

Education demographics and global inequality
Recent developments in emerging and developing country labor markets
Linkages between China and Sub-Saharan Africa

January 2018, Special Focus 2
June 2015, box 1.3
June 2015, box 2.1

What does weak growth mean for poverty in the future?
What does a slowdown in China mean for Latin America and the Caribbean?

January 2015, box 1.1
January 2015, box 2.2

Fiscal space

Other topics

169

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G LO BAL EC O NO MIC P ROS P EC TS | J U NE 2021

Global Economic Prospects: Selected Topics, 2015-21
Monetary and Exchange Rate Policies
Asset purchases in emerging markets: Unconventional policies, unconventional times

January 2021, chapter 4

The fourth wave: Rapid debt buildup
Price controls: Good intentions, bad outcomes

January 2020, chapter 4
January 2020, Special Focus 1

Low for how much longer? Inflation in low-income countries
Currency depreciation, inflation, and central bank independence

January 2020, Special Focus 2
June 2019, Special Focus 1.2

The great disinflation
Corporate debt: Financial stability and investment implications

January 2019, box 1.1
June 2018, Special Focus 2

Recent credit surge in historical context
Peg and control? The links between exchange rate regimes and capital account policies
Negative interest rates in Europe: A glance at their causes and implications

June 2016, Special Focus 1
January 2016, chapter 4June 2015, box 1.1

Hoping for the best, preparing for the worst: Risks around U.S. rate liftoff and policy options
Countercyclical monetary policy in emerging markets: Review and evidence

June 2015, Special Focus 1
January 2015, box 1.2

Fiscal Policies
How has the pandemic made the fourth wave of debt more dangerous?

January 2021, box 1.1

The fourth wave: Rapid debt buildup

January 2020, chapter 4

Debt: No free lunch

June 2019, box 1.1

Debt in low-income countries: Evolution, implications, and remedies

January 2019, chapter 4

Debt dynamics in emerging market and developing economies: Time to act?

June 2017, Special Focus 1

Having fiscal space and using it: FiscFal challenges in developing economies

January 2015, chapter 3

Revenue mobilization in South Asia: Policy challenges and recommendations

January 2015, box 2.3

Fiscal policy in low-income countries

January 2015, box 3.1

What affects the size of fiscal multipliers?

January 2015, box 3.2

Chile’s fiscal rule—an example of success

January 2015, box 3.3

Narrow fiscal space and the risk of a debt crisis

January 2015, box 3.4

Commodity Markets
Reforms after the 2014-16 oil price plunge

June 2020, box 4.1

Adding fuel to the fire: Cheap oil in the pandemic

June 2020, chapter 4

The role of major emerging markets in global commodity demandJune 2018, Special Focus 1

The role of the EM7 in commodity production

June 2018, SF1, box SF1.1

Commodity consumption: Implications of government policies

June 2018, SF1, box SF1.2

With the benefit of hindsight: The impact of the 2014–16 oil price collapse

January 2018, Special Focus 1

From commodity discovery to production: Vulnerabilities and policies in LICs

January 2016, Special Focus

After the commodities boom: What next for low-income countries?

June 2015, Special Focus 2

Low oil prices in perspective

June 2015, box 1.2

Understanding the plunge in oil prices: Sources and implications

January 2015, chapter 4

What do we know about the impact of oil prices on output and inflation? A brief survey

January 2015, box 4.1

Globalization of Trade and Financial Flows
High trade costs: Causes and remedies

June 2021, chapter 3

The impact of COVID-19 on global value chains

June 2020, box SF1

Poverty impact of food price shocks and policies

January 2019, chapter 4

Arm’s-length trade: A source of post-crisis trade weakness

June 2017, Special Focus 2

The U.S. economy and the world

January 2017, Special Focus

Potential macroeconomic implications of the Trans-Pacific Partnership Agreement

January 2016, chapter 4

Regulatory convergence in mega-regional trade agreements

January 2016, box 4.1.1

China’s integration in global supply chains: Review and implications

January 2015, box 2.1

Can remittances help promote consumption stability?

January 2015, chapter 4

What lies behind the global trade slowdown?

January 2015, chapter 4

G LO BAL EC O NO MIC P ROS P EC TS | J U NE 2021

S E L E C T E D TO P I C S

Prospects Group:
Selected Other Publications on the Global Economy, 2015-21
Commodity Markets Outlook

Column1

Causes and consequences of metal price shocks

April 2021

Persistence of commodity shocks

October 2020

Food price shocks: Channels and implications

April 2019

The implications of tariffs for commodity markets

October 2018, box

The changing of the guard: Shifts in industrial commodity demand

October 2018

Oil exporters: Policies and challenges

April 2018

Investment weakness in commodity exporters

January 2017

OPEC in historical context: Commodity agreements and market fundamentals

October 2016

From energy prices to food prices: Moving in tandem?

July 2016

Resource development in an era of cheap commodities

April 2016

Weak growth in emerging market economies: What does it imply for commodity markets?

January 2016

Understanding El Niño: What does it mean for commodity markets?

October 2015

How important are China and India in global commodity consumption?

July 2015

Anatomy of the last four oil price crashes

April 2015

Putting the recent plunge in oil prices in perspective

January 2015

Inflation in Emerging and Developing Economies: Evolution, Drivers, and Policies
Inflation: Concepts, evolution, and correlates

Chapter 1

Understanding global inflation synchronization

Chapter 2

Sources of inflation: Global and domestic drivers

Chapter 3

Inflation expectations: Review and evidence

Chapter 4

Inflation and exchange rate pass-throughChapter 5

Inflation in low-income countries

Chapter 6

Poverty impact of food price shocks and policies

Chapter 7

A Decade After the Global Recession: Lessons and Challenges for Emerging and Developing Economies
A decade after the global recession: Lessons and challenges

Chapter 1

What happens during global recessions?

Chapter 2

Macroeconomic developments

Chapter 3

Financial market developments

Chapter 4

Macroeconomic and financial sector policies

Chapter 5

Prospects, risks, and vulnerabilities

Chapter 6

Policy challenges

Chapter 7

The role of the World Bank Group

Chapter 8

Global Waves of Debt: Causes and Consequences
Debt: Evolution, causes, and consequences

Chapter 1

Benefits and costs of debt: The dose makes the poison

Chapter 2

Global waves of debt: What goes up must come down?

Chapter 3

The fourth wave: Ripple or tsunami?

Chapter 4

Debt and financial crises: From euphoria to distress

Chapter 5

Policies: Turning mistakes into experience

Chapter 6

171

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G LO BAL EC O NO MIC P ROS P EC TS | J U NE 2021

Prospects Group:
Selected Other Publications on the Global Economy, 2015-21
Global Productivity: Trends, Drivers, and Policies
Global productivity trends

Chapter 1

What explains productivity growth

Chapter 2

What happens to productivity during major adverse events?

Chapter 3

Productivity convergence: Is anyone catching up?

Chapter 4

Regional dimensions of productivity: Trends, explanations, and policies

Chapter 5

Productivity: Technology, demand, and employment trade-offs

Chapter 6

Sectoral sources of productivity growth

Chapter 7

The Long Shadow of Informality: Challenges and Policies
Overview

Chapter 1

Understanding the informal economy: Concepts and trends

Chapter 2

Growing apart or moving together? Synchronization of informal- and formal-economy business cycles

Chapter 3

Lagging behind: informality and development

Chapter 4

Informality in emerging market and developing economies: Regional dimensions

Chapter 5

Tackling informality: Policy options

Chapter 6

High-Frequency Monitoring
Global Monthly newsletter

Column1

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T

he world economy is experiencing a very strong but unevenrecovery, with many emerging market and developing economies
facing obstacles to vaccination. The global outlook remains
uncertain, with major risks around the path of the pandemic
and the possibility of financial stress amid large debt loads.
Policy makers face a difficult balancing act as they seek tonurture the recovery while safeguarding price stability and fiscal
sustainability. A comprehensive set of policies will be required topromote a strong recovery that mitigates inequality and enhances
environmental sustainability, ultimately putting economies on apath of green, resilient, and inclusive development. Prominently
among the necessary policies are efforts to lower trade costs sothat trade can once again become a robust engine of growth.
This year marks the 30th anniversary of the Global Economic
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Flagship Report that examines global economic developments
and prospects, with a special focus on emerging market anddeveloping economies, on a semiannual basis (in January andJune). Each edition includes analytical pieces on topical policy
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