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Economies around the world, such as Mexico’s, have been hampered by social distancing due to COVID-19

  • The COVID-19 pandemic is set to hit potential global growth over the next ten years, and could even cause a ‘lost decade’ if the recovery is mismanaged, the World Bank has said.
  • The World Bank said lower levels of investment, slower improvements in education, and lower female labor force participation would limit economies.
  • The global economy is expected to grow 4% in 2021 after shrinking 4.3% in 2020, but China is set to roar ahead with 7.9% growth this year.
  • Visit Business Insider’s homepage for more stories.

The coronavirus pandemic will cause “lasting damage” to the world economy and could even lead to a “lost decade” of growth, according to a gloomy report from the World Bank.

Although the global economy is set to recover sharply this year, it will still be around $4.7 trillion smaller than pre-pandemic projections, the international organization said.

Global GDP contracted by 4.3% last year, as COVID-19 led governments to all but shut down economies, according to the World Bank’s Global Economic Prospects report.

It is expected to grow 4% next year, as coronavirus vaccines aid a return to normal life. Nonetheless, the global economy will be around 5.3% smaller – about $4.7 trillion – in 2021 than if it had expanded along pre-pandemic lines.

“The global economy appears to be emerging from one of its deepest recessions and beginning a subdued recovery,” World Bank Group president David Malpass said in a foreword to the report.

“Policymakers face formidable challenges-in public health, debt management, budget policies, central banking and structural reforms-as they try to ensure that this still-fragile global recovery gains traction.”

Crucially, the World Bank’s report said the coronavirus pandemic means global “potential growth” – the rate of expansion the world economy can sustain when performing well without generating inflation – is now lower.

Weaker levels of investment, slower improvements in education and health, and lower increases in female labor force participation are all set to hold back potential growth to 1.9% a year over the 2020-2029 period. That is down from around 2.4% in 2010-2019.

The World Bank stressed that, in the short term, there is currently a great deal of uncertainty and “several growth outcomes are possible”.

An acceleration in the COVID-19 pandemic – as is being seen currently in the UK – and delays in vaccine distribution would be damaging.

The coronavirus crisis is expected to worsen the trend of slowing growth in developing countries, as they struggle with high levels of debt, the report said. If managed badly, the fallout from the pandemic could lead to a “lost decade” of growth.

However, if managed well, the global economy could fare better than predicted. A quick roll-out of vaccines and effective measures to limit further COVID-19 spread are key, the World Bank said.

The impact on economies around the world of the pandemic will be highly uneven. The World Bank’s report said the East Asia and Pacific region is likely to show “notable strength” this year thanks to China’s strong rebound.

The Chinese economy’s growth slowed sharply to 2% in 2020 but is expected to soar to 7.9% this year.

Meanwhile the US economy is predicted to expand by 3.5%, having shrunk 3.6% last year. The eurozone is expected to be a laggard, with growth of 3.6% in 2021 failing to make up for the seismic 7.4% contraction seen in 2020.

The World Bank – an international organization that gives countries financial support to boost development – said countries would have to walk a tightrope when it came to policy.

“Limiting the spread of the virus, providing relief for vulnerable populations, and overcoming vaccine-related challenges are key immediate policy priorities.

“As the crisis abates, policy makers need to balance the risks from large and growing debt loads with those from slowing the economy through premature fiscal tightening.”