The global economy will grow 5 percent next year, but risks will linger from the coronavirus pandemic, a state-run South Korean think tank forecast Thursday.

“The global economy is projected to grow 5 percent in 2021, which is 10.1 percentage points higher than this year’s forecast of a 5.1 percent contraction, as it will likely recover from the spread of COVID-19,” Kim Heung-chong, president of the Korea Institute for International Economic Policy, said at an annual press briefing in Sejong.

“It will be a year focused on finding a balance between prevention and rehabilitation, and there will be three key risks tied to the matter: COVID-19 vaccine development and distribution, and the possibility of a resurgence; a prolonged trade war between the US and China; and the gap between the financial and real economies,” he added.

Under a worst-case scenario, which involves a resurgence of the virus undermining the effects of economic stimulus measures, the 2021 economy faces only 2.2 percent growth, following a 6.4 percent contraction this year.

In a report tied to the briefing, the KIEP said key economies would see growth driven by signs of recovery in the third and fourth quarters of this year, but would have difficulty returning to the growth path seen in the pre-pandemic era.

“The US will show signs of recovery from economic setbacks, but negative impacts from the resurgence of the virus there will continue into early 2021 and (the US) will see 2.8 percent growth next year, which is 7.8 percentage points higher compared with this year’s growth forecast,” the report said.

US President-elect Joe Biden’s plans to expand federal spending are expected to serve as a positive catalyst for the US economy by helping to address climate change issues and create jobs, despite concerns about a corporate tax increase and stricter rules for tech firms.

China, which is engaged in a trade dispute with the US, should see 8.4 percent growth next year on the back of the government’s economic measures, the recovery of investment and spending, and an overall rebound of the global economy.

The US-China trade war, which has been named a key risk for the 2021 global economy, is likely to be prolonged despite Biden’s efforts to reestablish the US as a global leader and support free trade.

The current weak dollar trend is expected to continue for some time, he said, but if uncertainties stemming from the pandemic deal a blow to the global financial market, the trend is likely to get stronger. Meanwhile, the trend toward a strong Korean won against the US greenback is likely to continue because China -- Korea’s largest trading partner -- is likely to bounce back further in 2021.

“The most important factor in the decision-making process was the pandemic, and how we overcome this is crucial for the global economy,” Kim said.

Despite its small presence in the global economy, North Korea’s economic condition could trigger some ripple effects on the Korean Peninsula as well as in the Asian economic and political realms next year.

“North Korea will determine whether to leave or stay on the dialogue table over denuclearization around the time frame of its 8th Congress of the Workers’ Party of Korea slated for January,” KIEP researcher Choi Jang-ho said.

“Its economy is struggling from tough cross-border restrictions due to COVID-19 and the latest floods that damaged its agricultural output this year. Its economic crisis could make it hard for the North to conduct military provocations,” he added.

By Jung Min-kyung (mkjung@heraldcorp.com)