Global Economic Prospects: World Bank – Economics

Table of Contents

Recently, the World Bank has released a part of the Global Economic Prospects (GEP) June 2020 report.
The report highlighted that the Covid-19 pandemic will be having a “severe” short and long term effects on economic growth.

Impact on Global Poverty

The Covid-19 pandemic and economic shutdowns have devastated the poor around the world which is unprecedented in modern times.
60 million people could be pushed into extreme poverty in 2020.
These estimates are likely to rise further, with the reopening of advanced economies.
Damaged the multiple channels, including lower investment and innovation, erosion of the human capital and a retreat from global trade and supply linkages.
Lowered the potential growth and labor productivity.

EMDEs are most vulnerable and may face health crises, restrictions and external shocks like falling trade, tourism and commodity prices, as well as capital outflows.
Expected to have a 3-8% output loss in the short term.
But in the long term these countries will experience a drop in the level of output with a lowering of potential output growth.
Growth is likely to slow more in commodity-exporting EMDEs than in commodity-importing ones.

EMDEs are also expected to witness the spillover effects of the U.S., the Euro Area and China, which represent almost half of global output.
As these countries are unlikely to return to pre-pandemic levels of output before the end of 2021.

Earlier, G20 countries and commercial creditors had agreed to freeze loan repayments for low income countries (starting 1st May, 2020) till year-end.
But these creditors had not yet implemented the same.
The delay by commercial creditors to freeze loan repayment is deepening poverty in the debtor country.
Most creditors are in advanced economies like the U.S., Europe, Japan, China and the Gulf.

Facing a dual problem of the public health crisis with strained fiscal positions due to the recent collapse in oil revenues.
The collapse in oil demand due to the worldwide economic lockdowns and a surge in oil inventories have made steepest one-month decline in oil prices on record.

Some of the policy choices being implemented worldwide include greater debt transparency to invite new investment.
Greater transparency is expected to assist borrowers, creditors and the official sector in the ongoing assessment of debt dynamics and debt sustainability.
The economies have also fastened their digital connectivity, and have also implemented an expansion of cash safety nets for the poor which intends to limit the damage and build a stronger recovery.

The countries should try to moderate the short-term impact of the pandemic on economic activity and employment.
Initially, countries need to address health emergencies and secure core public services to revive the economy.
The worldwide economies should allow an orderly allocation of new capital toward sectors that would be productive in the new post-pandemic structures that emerge.
It has also suggested to fasten the adjustment of the capital and labour.
The economies worldwide need to implement policies such as improving the environment for business, improving governance, and enhancing the outcomes of education.
It also includes public health investments ,encouraging the new types of businesses, jobs and governance systems in the post-pandemic world.
Countries need to speed litigation and the resolution of bankruptcies and reform the costly subsidies, monopolies.
They also need to relook into the protected state-owned enterprises that have slowed development.