# 1. Introduction

With the COVID-19 pandemic still spreading across the world, and caseloads reaching record levels in many economies, the global outlook will continue to be heavily dependent on the pandemic’s evolution. Turning the tide of the pandemic in the near term will be challenging, requiring voluntary social distancing on the part of households and the imposition of a variety of pandemic management measures by governments. The widespread deployment of an effective vaccine will play a key role in halting the pandemic’s progression and is also expected to strengthen activity by raising confidence and improving financial market conditions.

The interactions of these forces are quantified in a novel modelling framework that offers several important contributions to the literature. First, it improves upon the existing epidemiological modeling literature by extending a stochastic Susceptible-InfectedRecovered (SIR) model to incorporate the role of vaccines and their effectiveness. The resulting stochastic Susceptible-Vaccine-Infected-Recovered (SVIR) model yields a set of pandemic outcomes for several countries conditional on alternative vaccination assumptions. Second, it marries these epidemiological outcomes with updated econometric evidence on the impact of COVID-19 cases and government-imposed lockdowns on economic activity. Third, the economic shocks generated by the conditional paths of the pandemic are embedded in a cutting-edge global semi-structural model, yielding detailed macroeconomic scenarios for a large set of countries.

This paper employs this novel modeling approach to develop three global economic scenarios illustrating the implications of alternative pandemic outcomes—in part influenced by alternative paths for the dissemination of a vaccine—on the global economy in 2021-22 (World Bank 2021). These scenarios differ in their assumptions on the evolution of COVID-19 caseloads, voluntary social distancing by households, the stringency of pandemic-control policies imposed by governments, and financial market stress.

The baseline scenario assumes that voluntary and mandatory pandemic control measures are diligently maintained over the next several quarters until after vaccination becomes widespread. From its recent increases in several major economies, the daily number of infections is assumed to decline in the first half of 2021 in most countries. In advanced economies and major emerging market and developing economies (EMDEs), vaccination campaigns would begin early in 2021 and reach widespread coverage in the second half of 2021; this vaccination process would be delayed by two to four quarters in other EMDEs and LICs partly due to logistical impediments. Activity is expected to improve as the pandemic abates, the vaccine is rolled out, and financial conditions remain benign, supported by exceptionally accommodative monetary policy.

The downside scenario assumes a persistently higher level of new cases in many regions throughout the forecast horizon. In advanced economies and major EMDEs, the vaccination proceeds at a much slower pace than under the baseline—with an additional delay of two to four quarters in other EMDEs and LICs—and is limited by reluctance 2