Port Wings, 20 Oct:
The global recovery continues amid increasing uncertainty, more complex policy trade-offs, but momentum has weakened, hobbled by the pandemic.
Fueled by the highly transmissible Delta variant, the recorded global COVID-19 death toll has risen close to 5 million and health risks abound, holding back a full return to normalcy.
Pandemic outbreaks in critical links of global supply chains have resulted in longer than expected supply disruptions, feeding inflation in many countries.
Overall, risks to economic prospects have increased and policy trade-offs have become more complex.
While almost 60 percent of the population in advanced economies are fully vaccinated and some are now receiving booster shots, about 96 percent of the population in low-income countries remain unvaccinated.
Compared to July forecast, the global growth projection for 2021 has been revised down marginally to 5.9 percent and is unchanged for 2022 at 4.9 percent. However, this modest headline revision masks large downgrades for some countries. The outlook for the low-income developing country group has darkened considerably due to worsening pandemic dynamics.
The downgrade also reflects more difficult near-term prospects for the advanced economy group, in part due to supply disruptions.
Partially offsetting these changes, projections for some commodity exporters have been upgraded on the back of rising commodity prices.
Pandemic-related disruptions to contact-intensive sectors have caused the labor market recovery to significantly lag the output recovery in most countries.
The dangerous divergence in economic prospects across countries remains a major concern. Aggregate output for the advanced economy group is expected to regain its pre-pandemic trend path in 2022 and exceed it by 0.9 percent in 2024.
By contrast, aggregate output for the emerging market and developing economy group (excluding China) is expected to remain 5.5 percent below the pre-pandemic forecast in 2024, resulting in a larger setback to improvements in their living standards.
These divergences are a consequence of the “great vaccine divide” and large disparities in policy support.
Furthermore, many emerging market and developing economies, faced with tighter financing conditions and a greater risk of de-anchoring inflation expectations, are withdrawing policy support more quickly despite larger shortfalls in output.
Supply disruptions pose another policy challenge. On the one hand, pandemic outbreaks and climate disruptions have resulted in shortages of key inputs and lowered manufacturing activity in several countries.
On the other hand, these supply shortages, alongside the release of pent-up demand and the rebound in commodity prices, have caused consumer price inflation to increase rapidly in, for example, the United States, Germany, and many emerging market and developing economies.
Food prices have increased the most in low-income countries where food insecurity is most acute, adding to the burdens of poorer households and raising the risk of social unrest.
A principal common factor behind these complex challenges is the continued grip of the pandemic on global society. The foremost policy priority is therefore to vaccinate at least 40 percent of the population in every country by end-2021 and 70 percent by mid-2022.
This will require high-income countries to fulfill existing vaccine dose donation pledges, coordinate with manufacturers to prioritize deliveries to COVAX in the near-term and remove trade restrictions on the flow of vaccines and their inputs.
At the same time, closing the $20 billion residual grant funding gap for testing, therapeutics and genomic surveillance will save lives now and keep vaccines fit for purpose.
Looking ahead, vaccine manufacturers and high-income countries should support the expansion of regional production of COVID-19 vaccines in developing countries through financing and technology transfers.