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World Bank boosts growth forecasts as U.S. stimulus, vaccines stoke demand

EconomyJun 08, 2021 10:21AM ET
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© Reuters. FILE PHOTO: A participant stands near a logo of World Bank at the International Monetary Fund - World Bank Annual Meeting 2018 in Nusa Dua, Bali, Indonesia, October 12, 2018. REUTERS/Johannes P. Christo/File Photo

By David Lawder

WASHINGTON (Reuters) - The World Bank on Tuesday raised its global growth forecast to 5.6% for 2021, marking the strongest recovery from a recession in 80 years due to U.S. stimulus spending and faster growth in China but held back by "highly unequal" access to COVID-19 vaccines.

The development lender's latest Global Economic Prospects report showed a 1.5-percentage-point increase from forecasts made in January, before the Biden administration took office and enacted a $1.9 trillion U.S. COVID-19 aid package.

Since then, vaccines have become much more widely distributed in the United States and some other wealthy countries, boosting their output, as forecasts lag for emerging market and low-income countries.

"This recovery is uneven and largely reflects sharp rebounds in some major economies -- most notably the United States, owing to substantial fiscal support -- amid highly unequal vaccine access," the World Bank said in the report.

Many emerging market and developing economies were seeing elevated COVID-19 caseloads, obstacles to vaccination and withdrawal of support, the bank said.

By 2022, this will leave global output about 2% below pre-pandemic projections, and about two thirds of emerging market economies will still not have made up last year's per-capita income losses.

If vaccine distribution to developing countries can be accelerated, World Bank economist Ayhan Kose said that 2022 global GDP growth, currently forecast at 4.3%, could increase substantially to around 5%.

The World Bank's 2021 U.S. growth forecast was bumped up by 3.3 percentage points from January to 6.8% in the latest report, its fastest pace since 1984, due to economic support that the bank described as "unprecedented in peacetime."

The euro zone's forecast was raised 0.6 percentage point to 4.2%, while China's was raised 0.6 percentage point to 8.5%.

Emerging markets excluding China are expected to grow 4.4% in 2021, a forecast that was raised by one percentage point since January.

World Bank President David Malpass has been urging rich nations including the United States to free up excess vaccine doses to developing countries as quickly as possible.

The World Bank report also noted risks associated with rising inflation pressures that will add about one percentage point to global inflation in 2021. It said the fall in inflation last year was the "most muted and shortest-lived of any of the five global recessions over the past 50 years."

And the increase in inflation since May 2020 has been faster than in previous recoveries, but it said that inflation expectations were expected to remain well-anchored, pointing to low and stable inflation in the long term.

"If this increase is temporary and inflation expectations remain well-anchored, this may not warrant a monetary policy response," the bank said. "If, however, inflation expectations risk becoming unanchored, EMDE central banks may be compelled to tighten monetary policy more than would be appropriate for their economies’ recoveries."

The report said market concerns about inflation could raise borrowing costs in emerging markets and low-income countries which are also more challenged by short-term inflation because of rising food costs.

World Bank boosts growth forecasts as U.S. stimulus, vaccines stoke demand
 

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