Global Economy to expand by 4% in 2021— World Bank

Prospects likely to change Kenya’s growth target of 6.4%

In Summary

•World Bank says vaccine deployment and investment key to sustaining recovery.

•Development risks however remain as economic activity, incomes likely to stay low for extended period.

World Bank's Felipe Jaramillo with Kenya's National Treasury CS Ukur Yatani on August 6, 2019/
World Bank's Felipe Jaramillo with Kenya's National Treasury CS Ukur Yatani on August 6, 2019/
Image: FILE

The global economy is expected to expand four per cent in 2021, the World Bank has said, projections that could alter Kenya’s target growth of 6.4 per cent.

The global lender has pegged its projection on the assumption that an initial Covid-19 vaccine rollout becomes widespread throughout the year.

A recovery, however, will likely be subdued, unless policy makers move decisively to tame the pandemic and implement investment-enhancing reforms, the World Bank says in its January 2021 Global Economic Prospects.

Although the global economy is growing again after a 4.3 per cent contraction in 2020, the pandemic has caused a heavy toll of deaths and illness, plunged millions into poverty, and may depress economic activity and incomes for a prolonged period.

Top near-term policy priorities are controlling the spread of Covid-19 and ensuring rapid and widespread vaccine deployment.

To support economic recovery, authorities also need to facilitate a re-investment cycle aimed at sustainable growth that is less dependent on government debt, the global lender notes.

“While the global economy appears to have entered a subdued recovery, 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 and sets a foundation for robust growth,” said World Bank Group President David Malpass. 

To overcome the impacts of the pandemic and counter the investment headwind, there needs to be a major push to improve business environments, increase labor and product market flexibility, and strengthen transparency and governance, President David Malpass adds. 

The latest World Bank’s projection is likely to influence Kenya’s growth, where international trade, foreign debt and global financial trends have impact on the local economy.

National Treasury CS Ukur Yatani had late last year projected the economy will recover in 202, expanding by 6.4 per cent, from a paltry 0.6 per cent last year when the pandemic ravaged different sectors.

The Kenya Economic Update covering April to October, last year, shows the country’s economic growth shrunk to negative 0.4 per cent compared to a growth  of 5.4 per cent a similar period in 2019.

According to Yatani, this year’s growth, albeit slow, will be supported by stable macroeconomic environment, ongoing investments in strategic priorities of the government under the Big Four Agenda, turn around in trade as economies recover from Covid-19 Pandemic and expected favorable weather that will support agricultural output.

“It is worth noting that in spite of the Covid-19, we have continued to maintain macro-economic stability as measured by the existing low and stable inflation and interest rates and a competitive exchange rate,” Yatani said.

Over the medium-term, growth will be above 6.0 per cent, the CS has affirmed.

He notes economic activities have started showing signs of recovery albeit with weaknesses in the tourism and education sectors.

Agriculture continues to remain strong thanks to above-average rainfall whereas activities in services sector have started to pick up supported by the easing of restrictions.

The World Bank has projected Kenya's economy will contract by one per cent in 2020 in the baseline scenario, and by 1.5 per cent in a more adverse scenario.

“The economy was exposed through the dampening effects on the domestic activity of the containment measures and behavioural responses, and through trade and travel disruption, affecting key foreign currency earners such as tourism and cut flowers),” the global lender said in an Economic Update.