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of better pandemic management and rapid vaccine
deployment, the
shared global experience of
combatting COVID-19 could contribute to an
increase in the extent and effectiveness of
multilateralism. Alternatively, the accelerated
adoption and globalization of digital services or
other practices and technologies introduced
during the pandemic could help bolster future
productivity growth.
Continued spread of the pandemic with delayed
or incomplete vaccine deployment
Even
with social distancing, universal masking,
and other pandemic-control measures, additional
waves of contagion will remain a risk until
widespread effective vaccination is achieved. All
countries, including those that have suffered the
largest outbreaks of COVID-19, remain well
below the threshold required to achieve enhanced
community resistance (figure 1.15.A). Flare-ups
could arise
from the appearance of new, more
virulent strains of COVID-19; premature efforts
to relax containment measures, such as fully
reopening schools or businesses when the rate of
contagion is still high; or by a lack of adherence to
health guidelines (figure 1.15.B).
As detailed in box 1.4, the baseline forecast
assumes that the ongoing vaccination rollout
gathers pace in early 2021 in advanced economies
and major EMDEs,
starting with vulnerable
groups and becoming widespread near the end of
the year. The process in other countries would
proceed with a delay of two to four quarters. The
pandemic is ultimately expected to be brought
under control in large parts of the world during
the second half of 2022.
There is, however, a possibility of delayed or
insufficient vaccination, as the distribution
timeline could be postponed in a variety of ways.
Vaccine development or production could
encounter
technical
problems.
Heightened
reluctance by parts
of the population to seek
vaccination could delay the rollout or leave some
communities vulnerable to further outbreaks.
Many EMDEs may experience more difficulties
with procurement and distribution or receive a less
effective vaccine than currently assumed, especially
widespread corporate and sovereign defaults. If
this scenario were to materialize, global growth
could even be negative in 2021, with countries
with lingering financial fragilities and large
funding needs suffering particularly extreme
dislocations.
Even if the pandemic is brought under control as
envisioned
in the baseline forecast, the damage
from last year’s global recession could prove
deeper than expected. Consumers and businesses
may become more cautious, resulting in even
weaker spending and investment. Very low
interest rates may allow otherwise unviable firms
to survive, crowding
out the more dynamic firms
that drive productivity growth. The elevated debt
levels of corporates and sovereigns may weigh on
activity through deleveraging pressures.
The risk of financial turmoil has been magnified
by the rise in debt levels as a result of the
pandemic. Shifts in investor sentiment could make
it difficult for sovereigns or corporates to finance
existing debt loads, while banking system buffers
have already been eroded by widespread corporate
bankruptcies. An extended period of very low
interest rates and
a spike in charge-offs on
impaired loans would erode bank profitability,
undermine capital buffers, and set the stage for
bank failures. A wave of defaults could lead to
financial crises, especially if overstretched
sovereigns lack the resources to provide public
support to stressed financial institutions.
Other risks also loom over the outlook. There has
been a steady erosion in international cooperation
and coordination,
as exemplified by tensions
related to COVID-19 restrictions and vaccine
distribution, as well as lingering trade disputes
between the United States and China. Restrictions
imposed to slow the spread of COVID-19 could
persist even after the health crisis ends, leading to
lower productivity as the global system of trade
becomes more fragmented. On a regional level,
civil unrest, drought, conflict, or persistently low
commodity prices could
derail activity in certain
groups of countries.
In
contrast,
stronger-than-expected
growth
outcomes could take place. Beyond the possibility
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policy support, more businesses would fall into
bankruptcy, and more workers would be at risk of
long-term unemployment. In these circumstances,
the global recovery in 2021 would be stunted, and
lingering fears of the pandemic combined with
accumulated supply-side scarring would weigh
heavily on growth in 2022.
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