The World Bank Group has warned that the coronavirus (Covid-19) pandemic and the economic shutdowns are dealing a severe blow to the global economy. It estimates that 60 million people poorer countries will be pushed into extreme poverty in 2020.
The World Bank said on June 2 in Washington DC that the analysis has been released ahead of the June 8 issuance of the full report of Global Economic Prospect, which will include the Bank Group’s latest forecasts for the global economy.
“The scope and speed with which the COVID-19 pandemic and economic shutdowns have devastated the poor around the world are unprecedented in modern times. Current estimates show that 60 million people could be pushed into extreme poverty in 2020. These estimates are likely to rise further, with the reopening of advanced economies the primary determinant,” said World Bank Group President David Malpass.
Mr Malpass added: “Policy choices made today – including greater debt transparency to invite new investment, faster advances in digital connectivity, and a major expansion of cash safety nets for the poor – will help limit the damage and build a stronger recovery.”
The World Bank explains that the financing and building of productive infrastructure are among the hardest-to-solve development challenges in the post-pandemic recovery.
“We need to see measures to speed litigation and the resolution of bankruptcies and reform the costly subsidies, monopolies and protected state-owned enterprises that have slowed development,” he said.
The World Bank states that deep recessions associated with the pandemic will likely exacerbate the multi-decade slowdown in economic growth and productivity, the primary drivers of higher living standards and poverty reduction.
Adding to the inequality problem from slow trend growth, the poor and vulnerable are among the hardest hit by the pandemic and economic shutdown – including through infection, school closures and lower remittance flows.
Mr Malpass said measures needed to protect public health have undercut an already fragile global economy, causing deep recessions in advanced economies and emerging market and developing economies (EMDEs) alike.
While outbreaks in most advanced economies appear to be abating, the pandemic is rapidly spreading across Emerging Markets and Developing Economies (EMDEs), including in low-income countries (LICs), where health care systems have very limited capacity. The pandemic and widespread restrictions put in place to stem it have already caused a deep global recession.
EMDEs that have weak health systems; those that rely heavily on global trade, tourism, or remittances from abroad; and those that depend on commodity exports will be particularly hard-hit, the analysis notes.
In the long-term, the pandemic will leave lasting damage through multiple channels, including lower investment; erosion of physical and human capital due to closure of businesses and loss of schooling and jobs; and a retreat from global trade and supply linkages.
These effects will lower potential output – the output an economy can sustain at full employment and capacity – and labor productivity well into the future. Pre-existing vulnerabilities, fading demographic dividends, and structural bottlenecks will amplify the long-term damage of deep recessions associated with the pandemic.
“When the pandemic struck, many emerging and developing economies were already vulnerable due to record-high debt levels and much weaker growth. Combined with structural bottlenecks, this will amplify the long-term damage of deep recessions associated with the pandemic,” said Ms Ceyla Pazarbasioglu, World Bank Group Vice President for Equitable Growth, Finance and Institutions.