Global outlook c h a p t e r 1

comparison
B. Selected indicators of economic 
activity in the euro area
C. Decline in tourism in euro area 
member countries with large tourism 
sectors
D. European Union recovery fund 
allocation for select members

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C H A P T E R 1 
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EMDE growth is envisioned to moderate in 2022, 
to 4.2 percent, near its potential pace. Despite the 
recovery, aggregate EMDE activity next year is 
expected to remain 6 percent below pre-pandemic 
forecasts. The shortfall is broad based, with more 
than 90 percent of EMDEs projected to register 
lower output levels in 2022 than previously 
anticipated.
Headwinds to activity remain particularly 
pronounced for economies with large services 
sectors, including those that rely on tourism, as 
social-distancing measures and sustained weakness 
in international travel weigh on hospitality and 
transportation (OECD 2020a). Economies with 
large services sector are envisioned to recover more 
slowly than other EMDEs, expanding an average 
of 3.2 percent over 2021-22. Similarly, growth in 
industrial-commodity exporters is expected to be 
anemic, averaging 2.8 percent over 2021-22, as 
many have tightened fiscal stances due to the 
collapse in revenues. 
The pandemic is expected to exacerbate the 
slowdown in productivity and potential output 
through its scarring effects on investment, labor 
supply, and human capital (Dieppe 2020; World 
Bank 2020k). Investment, which had decelerated 
in the past decade, is expected to weaken further 
as elevated uncertainty and impaired corporate 
profitability dent confidence (figure 1.12.C). After 
contracting in nearly all EMDEs in 2020, 
investment is forecast to shrink again this year in 
more than a quarter of economies—primarily in 
Sub-Saharan Africa (SSA), where investment gaps 
were already large prior to the pandemic. The 
drop in FDI inflows to EMDEs will further 
hinder capital accumulation (UNCTAD 2020).
COVID-19 is also likely to set back human capital 
development (World Bank 2020l). Longer 
unemployment spells may discourage workers 
from remaining in the labor force, which could 
appreciably erode skills given steep job losses. In 
previous economic crises, vulnerable groups faced 
higher rates of school dropout and reduced skills 
development, which increased income disparities 
(Shmis et al. 2020). School closures are expected 
to reduce the learning-adjusted years of education 
across EMDE regions by roughly a third to a full 
year (figure 1.12.D; Azevedo et al. 2020). This, 
combined with deskilling due to prolonged 
unemployment, will likely lower future earnings 
and dent human capital (Fasih, Patrinos, and 
Shafiq 2020; Fuchs-Schündeln et al. 2020). 
Overall, COVID-19 could reduce EMDE 
potential growth by a further 0.6 percentage 
point, to 3.4 percent, over the next decade absent 
reforms to boost underlying drivers of long-term 
growth (boxes 3.1 and 3.2).