global economic prospects: pandemic, recession—the global … · 2020. 11. 19. · global...

Global Economic Prospects:Pandemic, Recession—The Global Economy in Crisis

Franziska Ohnsorge

Four Questions

2

1 What are global growth prospects in the near term? Deepest global recession since thesecond world war, protracted and subdued recovery.

2 What are the risks to this outlook? Vaccine delays, more prolonged pandemic, loss of investorconfidence, a wave of corporate bankruptcies, debt distress.

3 What are the long-term implications of the pandemic? High likelihood of lasting damage toinvestment, human capital accumulation, and productivity.

4 What are policy priorities? Saving lives; protecting the poor and vulnerable; improving thefoundations of the economy and private sector; and strengthening institutions for a resilient recovery.

* EMDEs = Emerging Market and Developing Economies

Four Questions

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Pandemic-Triggered Global RecessionDeepest Since Second World War; Most Synchronized on Record

4Source: Bolt et al. (2018); Kose, Sugawara, and Terrones (2019, 2020); World Bank.Note: Data for 2020-21 are forecasts. Left Panel. For multi-year episodes, the cumulative contraction is shown. The per capita growth contraction in 1885 was less than -0.1 percent. Right Panel.Figure shows the proportion of economies in recession, defined as an annual contraction in per capita GDP. Sample includes 183 economies, though the sample size varies significantly by year.Shaded areas refer to global recessions.

Global per capita GDP growth(Percent)

Economies with per capita GDP contraction(Percent of economies)

-20

-15

-10

-5

0

1876

1885

1893

1908

1914

1917

-21

1930

-32

1938

1945

-46

1975

1982

1991

2009

2020

0

20

40

60

80

100

1871 1901 1931 1961 1991 2021

Spread of COVID-19Second Wave Underway in Advanced Economies

5

Source: Our World in Data, World Bank.Note: EAP, ECA, LAC, MNA, SAR, and SSA refer to, respectively, East Asia and Pacific, Europe and Central Asia, Latin America and the Caribbean, Middle East and North Africa, South Asia,and Sub-Saharan Africa. Figure shows 7-day moving average of cases by date of case reporting. Sample includes 36 advanced economies and 145 EMDEs, consisting of 16 EAP, 24 ECA, 32LAC, 19 MNA, 8 SAR, and 48 SSA. Last observation is November 9, 2020.

Weekly confirmed new COVID-19 cases(Thousands of cases)

Weekly confirmed new COVID-19 cases in EMDEs, by region(Thousands of cases)

0

100

200

300

400

Jan Apr Jul Oct

Advanced economies

EMDEs

0

20

40

60

80

100

120

Jan Apr Jul Oct

EAPECALACMNASARSSA

Trade, Financial and Commodity MarketsRecovering Trade; Stabilizing Financial and Commodity Markets

6

Source: Bloomberg, Haver Analytics, Institute of Shipping Economics and Logistics, World Bank.Left Panel. Figure shows 3-month moving averages. New export orders measured by manufacturing PMI. Last observation is September 2020 for container shipping and October 2020 for newexport orders. Center Panel. 10-year sovereign bond yields are computed summing the J.P. Morgan Emerging Market Bond Index spreads and the U.S. 10-year government bond yields. High-yield corporate bond yields are represented by the effective yields of the ICE BofAML High Yield Emerging Markets Corporate Plus Index. Last observation is November 9, 2020. Right Panel.Last observation is October 2020.

Global goods trade Nominal commodity prices, 2020(Index, January 2020 = 100)

EMDE bond yields, 2020(Percent)(Percent change, y/y) (Index)

20

40

60

80

100

120

Jan Apr Jul Oct

Agriculture

Energy

Metals20

30

40

50

60

-9

-5

-1

3

Nov-19 Apr-20 Sep-20

Container shippingNew export orders (RHS) 0

4

8

12

16

Jan Mar May Jul Sep Nov

High-yieldcorporate10-year sovereign

Global Growth Prospects Deep Recession in 2020; Rebound in 2021; Large Uncertainty

7Source: Consensus Economics, World Bank.Note: Consensus global growth forecasts for 2020 and 2021 in denoted months in 2020. Ranges show the minimum and maximum of growth forecasts by private forecasters.

Global GDP growth forecasts for 2020(Percent)

Global GDP growth forecasts for 2021(Percent)

-9

-6

-3

0

3

Mar Apr May Jun Jul Aug Sep Oct

Consensus (range)Consensus

0

2

4

6

8

10

Mar Apr May Jun Jul Aug Sep Oct

Consensus (range) Consensus

Disruptions to Global Integration of EMDEsHighly Reliant on Tourism, Remittances, and Commodities

8

Source: UN Comtrade, World Tourism Association, World Bank.Note: AEs refer to advanced economies. Left Panel. Median. Data are for 2018. Small states defined as in the World Bank classification. Center Panel. Data are for 2019. EAP, ECA, LAC, MNA,SAR, and SSA refer to, respectively, East Asia and Pacific, Europe and Central Asia, Latin America and the Caribbean, Middle East and North Africa, South Asia, and Sub-Saharan Africa.Simple average of the remittances as share of 2019 GDP for each region. Sample includes 145 EMDEs. Right Panel. Unweighted averages. Data are for 2019.

Remittance inflows(Percent of GDP)

Commodity exports(Percent of exports)

Tourism revenues(Percent of GDP)

0

3

6

9

EA

P

EC

A

LA

C

MN

A

SAR

SSA

EMDE average

0

3

6

9

12

AEs EMDEs Smallstates

0

20

40

60

80

AEs EMDEs LICs

Informality as Amplifier of ChallengesWeaker Social Safety Nets; Insufficient Medical Services

9

Source: Elgin et al. (forthcoming); Harvard Medical School; WHO/UNICEF; World Bank.First Panel. Average DGE-based informal output measures over 2006-16. Vertical orange lines show one-standard-deviation ranges. SSA refers to Sub-Saharan Africa. Second to Fourth Panels.Bars are group means calculated for EMDEs with “high informality” (i.e., the highest one-third DGE-based informal output measure) and those with “low informality” (i.e., the lowest one-thirdDGE-based informal output measure) over the period 2010-16. *** indicates the group differences are not zero at 10 percent significance level. Second Panel. Coverage of unemployment benefitsis shown in percent of population, while adequacy of social insurance programs is measured in percent of total welfare of beneficiary households.

Informal activity(Percent of GDP)

Access to medical resources(Per 1,000 people)

Access to sanitation(Percent of population)

Social insurance(Percent)

******

0

10

20

30

40

0

2

4

6

8

Unemp.benefit

coverage

Programadequacy

(RHS)

***

***

0

1

2

3

4

Physicians Nurses andmidwives

***

***

0

25

50

75

100

Sanitation Hand-washingfacilitiesHigh informality Low informality

10

20

30

40

50

EMDEs SSA

Four Questions

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Risks to the OutlookTilted to the Downside

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(-) Deeper or more prolonged recession

•Longer-lasting and more severe pandemic, delayed vaccine rollout •Financial crises amid high debt levels and wave of bankruptcies•Premature unwinding of fiscal support •Limited effectiveness of policy support•Renewed fall in commodity prices

(-) Weaker recovery•Larger-than-expected decline in potential growth•Lasting change in household behavior away from consumption, services, tourism•Fragmentation of, and retreat from, global value chains•Social unrest

Rising Debt-Related RisksRapid Debt Accumulation Heightens Risks of Financial Crisis

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Source: International Monetary Fund; Kose et al. (2020); World Bank.Left Panel. Aggregates are calculated using current GDP in U.S. dollars as weights. Shaded area refers to forecasts. Right Panel. The share of rapid debt accumulation episodes that are associatedwith financial crises, as defined by Laeven and Valencia (2020). An episode of rapid debt accumulation is defined as a period during which the debt-to-GDP ratio rises from trough to peak bymore than one (country-specific) ten-year rolling standard deviation. The trough-peak years are identified with the algorism in Harding and Pagan (2002). There are a total of 267 episodes ongovernment debt and 280 episodes of private debt in 100 EMDEs over 1970-2019.

Government debt(Percent of GDP)

0

50

100

150

1970 1980 1990 2000 2010 2020

WorldAdvanced economiesEMDEs

Rapid debt accumulation episodes associated with crises(Percent of episodes)

0

20

40

60

Governmentdebt

Private debt Total debt

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Income and PovertyCollapse in Per Capita Income, Rise in Poverty

14

Source: World Bank.Left Panel. The estimated number of poor, defined with the poverty line at 1.90 U.S. dollars per day, and corresponding poverty rate in 2020, relative to the pre-COVID trend. As described inPoverty and Shared Prosperity Report 2020, “pre-COVID” uses the January 2020 Global Economic Prospects growth rate projections, predating the COVID-19 crisis, and COVID-downside andCOVID-baseline use the June 2020 Global Economic Prospects growth rates Right Panel. The share of countries with per capita gains set back in 2021 by the number of years indicated.

Global poverty, 2020, relative to pre-COVID trend

1.0

1.2

1.4

1.6

50

75

100

125

Number of poor Poverty rate (RHS)

Baseline Downside

(Millions of people) (Percentage points)Years of per capita income gains reversed by 2020

(Percent of countries)

>10 years

5-9 years

1-4 years

0

25

50

75

100

Advanced economies EMDEs

Potential Output after Recessions and Financial Crises Sharper Declines if Accompanied by Recessions

15Source: Ha, Kose, and Ohnsorge (2019); World Bank.Note: Cumulative potential output response in four years after the event, based on local projections model. Bars show coefficient estimates, vertical lines show 90 percent confidence bands. Thedependent variable is cumulative slowdown in potential output after the beginning of events. Sample includes 75 EMDEs.

Potential output after disruptions(Percent deviation from baseline)

Potential output after recessions, crises(Percent deviation from baseline)

-10

-8

-6

-4

-2

0

Recession Financial crisis-10

-8

-6

-4

-2

0

Recession Financial crisisand recession

Four Questions

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Policy PrioritiesPolicies for Relief, Restructuring and Resilience

Saving lives threatened by the pandemic

• Support health care systems• Coordinate policies globally to accelerate search for effective vaccines, therapeutics and their rollout

Protecting the poor and vulnerable

• Continue to aid vulnerable groups• Coordinate policies globally to provide debt relief to poorest EMDEs

Maintaining foundations of the economy and the private sector

• Assist viable firms • Support aggregate demand• Preserve financial stability

Strengthening policies and institutions for resilient recovery

• Enhance debt and investment transparency• Ease debt burdens• Strengthen institutions and governance• Improve fiscal and monetary policy frameworks, financial regulation and bankruptcy procedures • Stimulate investment, improve human capital, support digital technologies, enhance safety nets• Coordinate policies globally to address global obstacles to building back better

Shrinking Policy Space in EMDEsWider Deficits; Higher Government Debt

18Source: International Monetary Fund; Kose et al. (2017, 2020).Note: Aggregates weighted by current GDP in U.S. dollars.

Fiscal balance(Percent of GDP)

Government debt(Percent of GDP)

-12

-8

-4

0

EMDEs LICs

2019 2020 20210

20

40

60

80

EMDEs LICs

2019 2020 2021

Four Questions

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Thank you!

Franziska Ohnsorge

[email protected]/gep

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mailto:[email protected]://www.worldbank.org/gep

Global Economic Prospects:��Pandemic, Recession—The Global Economy in CrisisFour QuestionsFour QuestionsPandemic-Triggered Global Recession�Deepest Since Second World War; Most Synchronized on RecordSpread of COVID-19�Second Wave Underway in Advanced EconomiesTrade, Financial and Commodity Markets�Recovering Trade; Stabilizing Financial and Commodity MarketsGlobal Growth Prospects �Deep Recession in 2020; Rebound in 2021; Large UncertaintyDisruptions to Global Integration of EMDEs�Highly Reliant on Tourism, Remittances, and CommoditiesInformality as Amplifier of Challenges�Weaker Social Safety Nets; Insufficient Medical ServicesFour QuestionsRisks to the Outlook�Tilted to the DownsideRising Debt-Related Risks�Rapid Debt Accumulation Heightens Risks of Financial CrisisFour QuestionsIncome and Poverty�Collapse in Per Capita Income, Rise in PovertyPotential Output after Recessions and Financial Crises �Sharper Declines if Accompanied by RecessionsFour QuestionsPolicy Priorities�Policies for Relief, Restructuring and ResilienceShrinking Policy Space in EMDEs�Wider Deficits; Higher Government DebtFour QuestionsThank you!

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