Global outlook c h a p t e r 1

particularly in LICs. Timely and equitable access 
to vaccines across the world will necessitate global 
cooperation. Only once the pandemic is contained 
in all countries will each country be safe from a 
resurgence.
Even once the pandemic has subsided, the global 
economic landscape is unlikely to return to its 
previous state. The pandemic will leave lasting 
scars on productivity, including through its effect 
on the accumulation of physical and human 
capital, which will exacerbate the downward trend 
in potential growth (figure 1.2.C). Accordingly, 
beyond the necessary steps to nurture the recovery 
and protect vulnerable populations in the near 
term, decisive policy action will be essential to 
address the far-reaching damage from COVID-19 

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and ultimately mitigate its compounding effects 
on the ongoing structural decline in long-term 
growth (chapter 3).
The prospect of a protracted period of low 
inflation and interest rates has important 
implications for both monetary and fiscal policy. 
In advanced economies, where the room for 
additional monetary policy support is limited, 
central bank frameworks are being reassessed, 
while fiscal policy is playing a more prominent 
role in macroeconomic stabilization. Over the 
longer run, the pandemic has highlighted the 
urgent need for reforms in advanced economies 
that harness the productivity benefits of sectoral 
reallocation and bolster the adoption of 
automation and digital technologies, along with 
the strengthening of social safety nets to facilitate 
this process. 
In EMDEs, monetary policy is likely to remain 
generally accommodative in the near term, helped 
by subdued inflationary pressures and expectations 
of prolonged expansionary monetary policy 
stances in advanced economies. Several EMDE 
central banks have continued to employ asset 
purchase programs. These purchases appear to 
have been effective at stabilizing financial markets 
during the height of financial stress last March-
April. Nevertheless, asset purchase programs need 
to be accompanied by clearly articulated policy 
mandates and objectives to avoid the risk that they 
would erode institutional independence and de-
anchor inflation expectations (chapter 4). In 
addition, EMDEs increasingly face the challenge 
of preserving financial stability while maintaining 
accommodative macroprudential policy stances—
such 
as 
lowered 
capital 
and 
liquidity 
requirements—to help facilitate credit availability 
and support the recovery. 
Despite high debt levels, many EMDEs have 
implemented unprecedented fiscal support in 
response to COVID-19 to protect lives and 
livelihoods, confront the collapse in activity, and 
bolster the eventual recovery. Nevertheless, relative 
to advanced economies, the amount of support in 
EMDEs has been far more limited—particularly 
in countries facing narrower fiscal space, such as 
LICs. In most advanced economies and EMDEs,