Home >Markets >Mark To Market >What World Bank says about recovery from the covid-induced recession

Unlike its usual optimism on economic forecasts, the World Bank was rather sceptical when it came to how the world would recover from the coronavirus -induced recession.

The organization expects global economic growth to be 1% in 2021 after shrinking 4.2% in the current year. The World Bank has three scenarios worked out for both the recession and the recovery thereafter. But even in its baseline scenario, it does not expect a quick and strong bounce back. A recovery is seen only in the second half of 2020. “However, despite large-scale fiscal and monetary policy support, this recovery would be hesitant. Even as employment picks up, households would only slowly increase consumption—particularly when it requires social interaction—amid concerns of possible infection," the World Bank said.

Graphic: Sarvesh Kumar Sharma/Mint
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Graphic: Sarvesh Kumar Sharma/Mint

What’s more is that the recovery won’t be simultaneous or even similar in various countries. Needless to say, how economies bounce back would depend on where they are on the covid-19 infection curve. Emerging market economies (EME) would find it particularly hard given the multiple problems they face. From increase in bankruptcies due to weak balance sheets to collapse of private investments, EMEs may struggle for a while to find growth. The added blow from exports contraction owing to advanced economies turning sluggish markets would also hurt EMEs.

As such, any recovery is simply a restoration to a previous normal after the pandemic-induced recession. The World Bank also believes that in an adverse scenario, wherein the recovery takes longer, EMEs would witness the growth recovery to just 2.7%, far lower than the 4.6% baseline forecast. Among EMEs, too, China is expected to contribute more to the recovery, going by the way the country has contained the virus outbreak.

Therefore, other economies in Asia, such as Indonesia, Thailand, Malaysia, India and Philippines, may show slower recovery. Most economists are also predicting a slow recovery for emerging economies. But is a strong recovery possible? The World Bank said policymakers are severely challenged, especially in EMEs. Weak healthcare systems increase the difficulties in containing the pandemic, while those economies relying on tourism and remittances would be particularly hit.

A case in point is India, where fiscal space has been limited, making the government rely largely on monetary policy and credit to revive the economy.

Direct fiscal stimulus has been a fraction of the announced 20.9 trillion economic package by the government. “As such, additional policy measures to support activity may be needed in the coming months," it added. Policymakers are clearly not done with supporting their respective economies. In the coming months, more measures would be seen so that the world economy not just survives, but can also get back on its feet.

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