Global economy seen to expand 4% in 2021: World Bank
KUWAIT CITY, Jan 7: The gross domestic product (GDP) of Kuwait is expected to grow 0.5 percent in 2021 and 3.1 percent in 2022 after a contraction of 7.9 percent last year, according to the Global Economic Prospects for January 2021 released by the World Bank recently. In other countries in the Gulf, the forecast for Bahrain is 2.2 percent in 2021 and 2.5 percent in 2022, 0.5 percent in 2021 and 7.9 percent in 2022 for Oman, 3.0 percent in 2021 and 2022 for Qatar, 2.0 percent in 2021 and 2.2 percent in 2022 for Saudi Arabia, and 1.0 percent in 2021 and 2.4 percent in 2022 for the United Arab Emirates.
The COVID-19 pandemic caused output losses in the Middle East region of an estimated 5% in 2020. Employment losses spiked in many economies and employment remains depressed. The income shock from the pandemic is expected to increase the number of people below the $5.50 per day poverty line in the region by tens of millions this year.
Output in Middle East and North Africa (MENA) oil exporters is estimated to have contracted by 5.7% last year. Oil sector output growth continues to be constrained by commitments to the OPEC+ production cut agreement. Oil importers experienced a milder contraction of 2.2% in 2020, reflecting an initially limited COVID-19 outbreak in the first half of the year and lower oil prices. However, the pace of new infections has risen rapidly and fresh policy uncertainty has compounded the impact of pandemic-related disruptions to activity. Most economies in the region have announced fiscal stimulus packages that include increased spending on health and social safety nets, tax payment reductions and deferrals, and loans and guarantees to firms.
Monetary policy adjustments have also helped to cushion the economic impact of the pandemic, with the average interest rate cuts of over 125 basis points. Outlook: Economic activity in the Middle East and North Africa is forecast to recover modestly to 2.1% in 2021, reflecting the lasting damage from the pandemic and low oil prices. The recovery is contingent on containment of the pandemic, stabilizing oil prices, no further escalation of geopolitical tensions, and the assumption of a vaccine rollout in the second half of the year.
By 2022, after two years of expected recovery, output is still about 8% below the output projected prior to the pandemic, with a larger impact on oil importers than exporters. Among oil exporters, growth is expected to recover to 1.8% this year, supported by normalizing oil demand, the scheduled easing of the OPEC+ oil production cuts, policy support, and the gradual phasing out of domestic pandemic-related restrictions. In Saudi Arabia, activity will be supported by a resumption of public capital investment projects postponed during the pandemic and a recovery of demand after the sharp rise of the value added tax. Growth in the Islamic Republic of Iran is expected to recover due to rebounds in domestic consumption and tourism and moderating disruptions from COVID-19. Growth in oil importers is expected to rebound to 3.2% in 2021 as mobility restrictions are gradually eased and exports and domestic demand recover slowly.
In the Arab Republic of Egypt, growth is expected to slow to 2.7% in fiscal year 2020/2021, amid a collapse in tourism, gas extractives and a slowdown in other key sectors such as manufacturing. Morocco is expected to rebound to 4.0% in 2021 as the country’s agricultural output recovers from drought and the government eases domestic lockdowns.
Meanwhile, the global economy is expected to expand 4% in 2021, assuming an initial COVID-19 vaccine rollout becomes widespread throughout the year. A recovery, however, will likely be subdued, unless policy makers move decisively to tame the pandemic and implement investment enhancing reforms, the World Bank says in its January 2021 Global Economic Prospects. Although the global economy is growing again after a 4.3% contraction in 2020, the pandemic has caused a heavy toll of deaths and illness, plunged millions into poverty, and may depress economic activity and incomes for a prolonged period. Top near-term policy priorities are controlling the spread of COVID-19 and ensuring rapid and widespread vaccine deployment.
To support economic recovery, authorities also need to facilitate a re-investment cycle aimed at sustainable growth that is less dependent on government debt. “While the global economy appears to have entered a subdued recovery, policymakers face formidable challenges – in public health, debt management, budget policies, central banking and structural reforms – as they try to ensure that this still fragile global recovery gains traction and sets a foundation for robust growth,” said World Bank Group President David Malpass. “To overcome the impacts of the pandemic and counter the investment headwind, there needs to be a major push to improve business environments, increase labor and product market fl exibility, and strengthen transparency and governance.” The collapse in global economic activity in 2020 is estimated to have been slightly less severe than previously projected, mainly due to shallower contractions in advanced economies and a more robust recovery in China.
In contrast, disruptions to activity in the majority of other emerging market and developing economies were more acute than expected. “Financial fragilities in many of these countries, as the growth shock impacts vulnerable household and business balance sheets, will also need to be addressed,” Vice President and World Bank Group Chief Economist Carmen Reinhart said. The near-term outlook remains highly uncertain, and different growth outcomes are still possible, as a section of the report details. A downside scenario in which infections continue to rise and the rollout of a vaccine is delayed could limit the global expansion to 1.6% in 2021. Meanwhile, in an upside scenario with successful pandemic control and a faster vaccination process, global growth could accelerate to nearly 5 percent.