Global outlook c h a p t e r 1

A. Price-to-earnings ratios of select 
stock indexes
B. Government debt
C. Debt accumulation episodes 
associated with crises
D. Output during government debt 
accumulation episodes

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tepid if the corporate sector becomes crowded 
with highly indebted “zombie” firms that are not 
able to invest or innovate (figure 1.17.C; Banerjee 
and Hofmann 2020). The increase in households’ 
precautionary savings may persist in the face of 
higher debt and weaker incomes, and banks’ need 
to repair balance sheets may limit credit 
availability. These developments would be 
consistent with a rise in global savings and fall in 
investment as economic agents attempt to 
deleverage in tandem, leading to persistently weak 
growth and little actual progress at lowering 
debt—the so-called “paradox of thrift” (Fornaro 
and Romei 2019).
The pandemic has also had a negative impact on 
the accumulation of human capital. On a global 
level, an additional year of schooling is associated 
with a 10 percent increase in wages, suggesting 
that productivity will likely suffer from the fact 
that more than 90 percent of all students had their 
education disrupted to some extent last year, with 
about 40 percent losing the majority of the school 
year (figure 1.17.D; World Bank 2018a, 
UNESCO 2020). Many on-the-job training 
opportunities have been lost alongside the 
equivalent of almost 500 million full-time jobs 
destroyed by the pandemic (ILO 2020). Income 
losses are likely to result in higher malnutrition in 
some regions, which may further stunt the 
development and future productivity of those 
affected (FAO et al. 2020). The overall impacts 
are likely to be more severe for poorer EMDEs as a 
result of their less developed health systems and 
lower capacity for remote work and virtual 
education.