What is next for the global economy? Scenarios beyond 2021

The global economy is strengthening as it emerges from the deepest global recession since World War II. But its robust rebound in 2021 is expected to be markedly uneven. A sizable share of the high growth projected in the June 2021 Global Economic Prospects reflects stimulus-fueled reopening in advanced economies and strong momentum from late 2020. With the pandemic still spreading in parts of the world and fiscal support possibly on track to be unwound, what happens beyond 2021 is highly uncertain.

This blog presents three model-based scenarios of global growth. The scenarios vary in their assumptions about the primary fault lines of recent macroeconomic projections: the evolution of the pandemic and the level of global financial stress. And although the global outlook is uncertain, the policy recommendations are not: policy makers can leverage a potentially fleeting favorable external environment to bolster financial stability and long-run growth prospects.

Post-recession rebound expected to be unusually strong…

The World Bank envisions global growth reaching 5.6 percent in 2021, the fastest post-recession pace in 80 years (Figure 1). Advanced-economy growth is expected to be exceptionally strong this year: in per capita terms, it will likely double its pace following the 2009 recession.

Figure 1: Global output recoveries over history

…But highly uneven across countries.

The rebound in emerging market and developing economies (EMDEs) is expected to be less pronounced than the recovery that followed the 2009 recession. As a result, this global recovery is expected to be less broad-based and more uneven than previous ones. Whereas over 90 percent of advanced economies are expected to regain their pre-recession per capita output levels in 2022, only about one third or EMDEs are expected to do so over that time (Figures 2-3).

Figure 2: Share of advanced economies exceeding pre-recession per capita peaks after 2 years

Figure 3: Share of EMDEs exceeding pre-recession per capita peaks after 2 years

Global growth outcomes beyond 2021

Under the baseline scenario, global growth is expected to moderate but remain robust, averaging 3.7 percent over 2022-23 (Figure 4). If the possibility of recurring local COVID-19 outbreaks combined with a sharp tightening of global financial conditions -- a 'Faltering Recovery' scenario -- were to materialize, global growth could be notably weaker, averaging 2.4 percent in 2022-23. The global outlook would then resemble the anemic recovery that followed the 2009 recession. Alternatively, if effective pandemic management at the global level and increased technological adoption were to catalyze a durable private sector-led recovery, global growth could reach an average of 4.4 percent over the remainder of the outlook.

Figure 4: World GDP growth

EMDE growth outcomes beyond 2021

The baseline scenario envisions a continued recovery in EMDEs through 2023, with growth averaging 4.5 percent in 2022-23 (Figure 5). Still, this would be insufficient to return most EMDEs to their pre-pandemic levels, let alone their pre-pandemic trends. By 2022, only about one third of EMDEs would recover their 2019 level of per capita output. A sudden rise of global financial stress amid a lingering pandemic could cut the nascent recovery short, with EMDE growth averaging only 2.4 percent over 2022-23, well below an estimated potential output growth of 3.9 percent over that time. In contrast, if durable pandemic containment is achieved and EMDEs were to take advantage of benign global conditions to implement growth-enhancing reforms, the projected expansion could be even stronger, with growth averaging over 5 percent over 2022-23.

Figure 5: EMDE GDP growth

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