Commentary on Political Economy

Tuesday, 5 January 2021

 

Vaccine delays risk more than halving global growth, World Bank warns

A doctor administers a dose of vaccine to a woman in Montpellier in the south of France. The rollout of vaccines is already running into problems, the World Bank has warned. © AFP via Getty Images

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The global economic recovery from Covid-19 will rely heavily on the successful rollout of vaccines, the World Bank has warned, adding that any delay risks more than halving this year’s growth rate. 

At best the world faces “a slow and challenging recovery”, the bank said.

The multilateral lender forecast on Tuesday that world GDP would grow by 4 per cent in 2021, a pace that would still leave economic activity 4.4 per cent below its pre-pandemic path by 2022. But this assumes rapid progress with vaccination campaigns in advanced economies and in major emerging and developing countries, reaching widespread coverage by the second half of 2021.

This recovery could easily be derailed, the World Bank warned. If infections continue to rise and vaccine rollouts in major economies are slowed by logistical problems and people’s reluctance to be immunised, global GDP could expand by as little as 1.6 per cent this year, it estimated.

David Malpass, president of the World Bank, said the rollout of vaccinations was already running into problems.

“Even in advanced economies there have been difficulties in pushing ahead with vaccination programmes, and that is true in poor countries as well,” he said. “Advanced economies have reserved vaccines beyond their capacity to distribute them, so we are hoping they will free up some of those for purchase and distribution in poorer countries.”

In an extreme scenario, in which financial stress leads to widespread corporate and government defaults, the global economy could contract for a second consecutive year, the bank said.

After an initial wave of economic optimism late last year, as the prospect of vaccinations became a reality, the challenges of implementing a mass rollout have become clearer. EU authorities are under fire for their sluggish start — France vaccinated just 350 people in the first week, while Germany’s government is accused of failing to procure enough doses.

Meanwhile, Britain has entered a new lockdown to combat the spread of a more transmissible mutation of the virus, and worries are growing that a new South African strain could to lead to vaccine-resistant variants.

“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,” Mr Malpass said.

The outlook is equally bleak for advanced and emerging economies. In the bank’s central scenario, growth in the rich world is set to average 3.3 per cent this year. In emerging and developing economies excluding China — where output is expected to rebound to a 7.9 per cent expansion — it would average 3.4 per cent.

Mr Malpass warned that stimulus programmes in advanced economies, including large-scale asset purchase programmes, risked aggravating the problem of inequality.

“Stimulus mechanisms are working to concentrate wealth at the top rather than adding wealth from the bottom up,” he said. “People at the bottom are going down even as people at the top are going up.”

Institutional reforms to spur growth will be crucial once the immediate health crisis begins to ease because many countries already have high debt levels and weak fiscal positions, the World Bank said.

Even before coronavirus hit, global growth had been expected to slow over the next decade, due to under-investment and shrinking labour forces in advanced economies. The pandemic is likely to worsen this slowdown, doing lasting damage to health, education and corporate balance sheets, the World Bank said.

Without comprehensive reforms “if history is any guide, the global economy is heading for a decade of growth disappointments”, it said.

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