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Global growth numbers look good, but challenges remain multi-faceted and complex, says Indranil Pan

Risks to global growth remains many. The divergence in growth outcomes across the world could be mitigated by a wider spread of vaccination across various countries.

October 20, 2021 / 08:04 AM IST


Indranil Pan, Chief Economist at YES Bank

The title of this piece broadly reflects the theme for the October 2021 World Economic Outlook (WEO). Compared to the July forecasts, the WEO brought down the global growth projections for 2021 marginally by 0.1 percent to 5.9 percent and has retained the forecasts for 2022 at 4.9 percent.

For the advanced economies, the growth projection for 2021 has been lowered by 40 bps compared to the July forecasts. Of this, the US sees the worst downward revision of 100 bps, while the European region forecast has seen an improvement of 40 bps. Heartening to note, Emerging Markets (EMs) and Developing Economies witnessed an upgrade in the growth projection by 0.1 percent while India’s growth projection remains stable at 9.5 percent.

While the preceding paragraph sets the discussion in motion, this is not the key theme for this article. The downward correction in the headline numbers just by a small margin does not truly convey the economic stress that various countries may be undergoing.

While the projections for some commodity exporters have been upgraded on the back of rising commodity prices, the outlook for low-income developing countries have darkened considerably due to Covid-19.


Thus, the headline growth numbers, to a very large extent, masks the divergence in economic prospects of various countries. However, this is the key risk facing global growth. Under current assumptions, WEO estimates that aggregate output for the advanced economy group is expected to regain its pre-Covid-19 trend in 2022 and even exceed it by 0.9 percent by 2024.

On the other hand, for the EMs and developing economy group (excluding China), it is estimated to be 5.5 percent below the pre-Covid-19 forecast in 2024, thus having significant implications on the standards of living in these economies and the consequent policy responses.

Against the backdrop of the weak growth in a certain segment of the world, the Covid-19 impact on the global supply chain creates another complexity in the policy trade-offs in these economies. Covid-19 has led to longer-than-expected supply disruptions and this is feeding into inflation in many countries.

The WEO highlights that the EMs and developing economies are facing a greater risk of de-anchoring inflation expectations and are more likely to be withdrawing policy support quickly. This is despite a continued large shortfall in the respective outputs, and hence risking recovery out of the Covid-19 situation that is far away from durable.

The other big conclusion of this report is that employment continues to lag the growth recovery. Labour markets are recovering but with the pace being uneven across economies and across various category of workers. This surely has implications for policy. Workers stayed away due to family related issues such as taking care of children during a lockdown. Women are likely to be more affected than men in this case. Faster adoption of automation could be changing labour demand patterns.

Further, employment of youth and lower-skilled workers remain weaker compared to their respective counterparts. WEO estimates that youth participation rates are more than 6 percent lower than in early 2021 in both advanced and emerging market economies.

Such gaps in participation rates, if persistent, can lead to large inequalities amongst the working population and can be a challenge for policymakers. Lower labour participation rates create a pressure on wages and thus on inflation as a second-round reaction and disrupts the pitch for policymakers.

As central banks remain keen to being credible, this situation could lead them to tighten monetary policy ahead of the closure of the negative output gap and prevent a situation where higher wages out of labour supply shortages creates risks for inflation getting self-fulfilling.

Risks to global growth thus remains many. First, the divergence in growth outcomes across the world could be mitigated by a wider spread of vaccination across various countries. Just to provide a sense of the divergence in vaccination, we refer to the This shows that as of October 14, 2021, low-income countries such as Kenya, Ethiopia and Nigeria have less than 2 percent of their population fully vaccinated. On the other hand, a developed nation such as the US has 56 percent of the population fully vaccinated.

As explained earlier, the emerging landscape for growth-inflation mix could nudge the central banks to tighten their policies ahead of expectations. Unfortunately, the fiscal space is also limited in many economies. But governments need to be careful in withdrawing fiscal responses, especially in developing economies, where income inequalities were high before Covid-19 and worsened now. This implies that the governments would still need to spend on supporting lifelines and would also have to continue to spend more on healthcare, education and retraining efforts for long-term sustaining goals.

In conclusion, even as the headline world growth numbers look good, the challenges remain multi-faceted and complex. Effectively, the current situation can potentially lead to missteps from policy makers, a situation that needs to be avoided at all costs.

Disclaimer: The views and investment tips expressed by investment expert on are his own and not that of the website or its management. advises users to check with certified experts before taking any investment decisions.
Indranil Pan is the Chief Economist at YES Bank.
first published: Oct 20, 2021 08:04 am

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