World Bank boosts growth forecasts as US stimulus, vaccines stoke demand

The World Bank on Tuesday raised its global growth forecast to 5.6% for 2021, marking the strongest recovery from a recession since 1940 due to U.S. stimulus spending and faster growth in China but held back by "highly unequal" access to COVID-19 vaccines.

The development lender's latest Global Economic Prospects report showed a 1.5-percentage-point increase from forecasts made in January, before the Biden administration took office and enacted a $1.9 trillion U.S. COVID-19 aid package.

Since then, vaccines have become much more widely distributed in the United States and some other wealthy countries, boosting their output, as forecasts lag for emerging market and low-income countries.

"This recovery is uneven and largely reflects sharp rebounds in some major economies -- most notably the United States, owing to substantial fiscal support -- amid highly unequal vaccine access," the World Bank said in the report.

Many emerging market and developing economies were seeing elevated COVID-19 caseloads, obstacles to vaccination and withdrawal of support, the bank said.

By 2022, this will leave global output about 2% below pre-pandemic projections, and about two-thirds of emerging market economies will still not have made up last year's per-capita income losses.

World Bank President David Malpass reiterated his calls for rich nations, including the United States, to free up excess vaccine doses to developing countries as quickly as possible.

Ayhan Kose, economist and director of the World Bank's Prospects Group, said the latest forecasts assume that advanced economies will have their populations vaccinated by year-end, and a number of major emerging market economies also will make significant vaccination progress. But vast numbers of people in developing and poor countries will still be waiting for vaccines into next year.

"Right now we are predicting growth next year around 4.3%. That growth number can be around 5% if we see faster distribution of vaccines," said Kose.

The World Bank's 2021 U.S. growth forecast was bumped up by 3.3 percentage points from January to 6.8% in the latest report, its fastest pace since 1984, due to economic support that the bank described as "unprecedented in peacetime."

The euro zone's forecast was raised 0.6 percentage point to 4.2%, while China's was raised 0.6 percentage point to 8.5%. As a major exporter, China is benefiting from a boost in global demand, along with prior stimulus and virus containment efforts, the bank said.

Emerging markets excluding China are expected to grow 4.4% in 2021, a forecast that was raised by one percentage point since January.

The World Bank report also noted risks associated with rising inflation pressures that will add about one percentage point to global inflation in 2021. It said the fall in inflation last year was the "most muted and shortest-lived of any of the five global recessions over the past 50 years."

And the increase in inflation since May 2020 has been faster than in previous recoveries, but it said that inflation expectations were expected to remain well-anchored, pointing to low and stable inflation in the long term.

"If this increase is temporary and inflation expectations remain well-anchored, this may not warrant a monetary policy response," the bank said. "If, however, inflation expectations risk becoming unanchored, EMDE central banks may be compelled to tighten monetary policy more than would be appropriate for their economies' recoveries."

The report said market concerns about inflation could raise borrowing costs in emerging markets and low-income countries, which are also more challenged by short-term inflation because of rising food costs.

(Reporting by David LawderEditing by Bernadette Baum and Jonathan Oatis)