According to the Bank of Zambia’s January – June, 2021 Monetary Policy Statement, on the global economic outlook for 2021-2022. The global economy is projected to strongly rebound to 5.5% in 2021, but moderate to 4.2% in 2022 against a contraction of 3.5% in 2020. The optimistic growth projection in 2021 is mainly based on a gradual easing of restrictive measures owing to the anticipated widespread vaccination against COVID-19 coupled with strong policy support. This is expected to boost consumer and business confidence and contribute to the recovery of most global supply chains with a positive impact on demand, trade, consumption, investment and financial conditions. However, the recovery is envisaged to be uneven and likely to differ across countries contingent on the extent of economic damage, effectiveness of policy support and severity of health shocks.
Source: Bretton woods project (the IMF and World Bank-led)
The downside risks to the growth outlook dominate as stiffer restrictive measures, disruption to the recovery in consumer and business confidence as well as lower productivity may re-emerge. In addition, there is a high degree of uncertainty regarding the efficacy of the COVID-19 vaccines in the wake of the resurgence of new variant-related infections. Further, underlying fragilities in the financial markets could mount on account of rising debt burdens and likely premature withdrawal of policy support.
The above notwithstanding, the potential for additional fiscal stimulus and faster-than-anticipated roll out of vaccines could result in higher growth outturn than envisaged. Further, economic activity in all major trading partner countries for Zambia is expected to gather pace in 2021 and the medium-term. This is underpinned by easing COVID-19 containment measures on the back of widespread vaccine coverage, sustained policy support, restoration of consumer and investment spending, the recovery in global and domestic aggregate demand, higher commodity prices and favorable financing conditions.
Real GDP growth is projected to rebound to 5.1%, 4.2% and 4.5% from contractions of 3.4%, 7.2% and 10.0% for the United States, Euro area and UK in 2021 and 2020, respectively. In 2022, economic growth for these countries is estimated to remain strong at 2.5%, 3.6% and 5.0%, respectively.
In China, a robust growth outturn of 8.1% is projected for 2021 compared to the outturn of 2.3% in 2020. In 2022, growth is expected to strengthen to 5.6%. For South Africa and the Democratic Republic of Congo (DRC), growth is expected to expand to 2.8% and 3.0% from -7.5% and -2.7% in 2020 and in 2021, respectively. However, in 2022, economic growth in South Africa is projected to slow down to 1.4% while that for the DRC is expected to strengthen further to 3.8%. Persistent electricity supply challenges and high unemployment levels may constrain growth in South Africa while growth in DRC could be affected by constrained capacity to fully respond to the pandemic and the economy’s susceptibility to commodity price swings.
International Monetary Fund (IMF) October 5, 2021. Kristalina Georgieva, IMF Managing Director. “Looking at the economic picture, in July we projected global growth at 6 percent in 2021. As you will see in our updated World Economic Outlook, we now expect growth to moderate slightly this year. But the risks and obstacles to a balanced global recovery have become even more pronounced: the stones in our shoes have become more painful. I will focus on three of them”.
The first is the divergence in economic growth.
The United States and China remain vital engines of growth even as their momentum is now slowing. A few advanced and emerging economies are still gaining momentum, including Italy and Europe more broadly. By contrast, in many other countries, growth continues to worsen, hampered by low access to vaccines and constrained policy response, especially in some low-income nations. And this divergence in economic fortunes is becoming more persistent.
Economic output in advanced economies is projected to return to pre-pandemic trends by 2022. But most emerging and developing countries will take many more years to recover. This delayed recovery will make it even more difficult to avoid long-term economic scarring—including from job losses, which hit young people, women, and informal workers especially hard.
The second “stone” in our shoe is inflation.
Headline inflation rates have increased rapidly in a number of countries—but again, with some more affected than others. While we do expect price pressures to subside in most countries in 2022, in some emerging and developing economies, price pressures are expected to persist. One particular concern with inflation is the rise in global food prices—up by more than 30 percent over the past year. Together with rises in energy prices, this is putting further pressure on poorer families.
More generally, inflation prospects remain highly uncertain. A more sustained increase in inflation expectations could cause a rapid rise in interest rates, and a sharp tightening of financial conditions. This would pose a particular challenge for emerging and developing economies with high debt levels.
The third “stone”: debt.
We estimate that global public debt has increased to almost 100 percent of GDP Much of this reflects the necessary fiscal response to the crisis as well as the heavy output and revenue losses due to the pandemic. Here we see yet another deep divide, with some countries more affected than others—especially in the developing world. Many started the pandemic with very little fiscal firepower. Now they have even less room in their budgets—and very limited ability to issue new debt at favorable terms. In short, they face tough times and are caught on the wrong side of the fiscal financing divide, she said.
World Bank, June 18, 2021. States that, the global economy is expected to expand 5.6% in 2021, the fastest post-recession pace in 80 years, largely on strong rebounds from a few major economies. However, many emerging market and developing economies continue to struggle with the COVID-19 pandemic and its aftermath, the World Bank says in its June 2021 Global Economic Prospects.