World economy is expected to trail pre-COVID predictions for years

The World Bank released its latest Global Economic Prospects report this week, providing us with an updated look at the coronavirus pandemic’s effect on the world economy. Striking a cautious tone, the report finds that global economic output will likely remain below its pre-pandemic trend for a protracted period, warning that the pandemic “has exacerbated the risks associated with a decade-long wave of global debt accumulation.”

While the World Bank’s economists have adjusted their 2020 forecast for global GDP growth from -5.2 percent to -4.3 percent to account for early signs of recovery, their outlook for 2021 has worsened at the same time due to lingering effects of the pandemic. As the following chart shows, COVID-19 has thrown the world economy off its growth trajectory and it is not expected to surpass pre-pandemic output before 2022.

“In the midst of every crisis, lies great opportunity,” a quote widely attributed to Albert Einstein says. The current crisis is no different in that it also presents a chance for policy adjustments. “As countries formulate policies for recovery, they have a chance to embark on a greener, smarter, and more equitable development path. Investing in green infrastructure projects, phasing out fossil fuel subsidies, and offering incentives for environmentally sustainable technologies can buttress long-term growth, lower carbon output, create jobs, and help adapt to the effects of climate change,” World Bank President David Malpass writes in his opening remarks.