The coronavirus (COVID-19) pandemic has dealt a severe blow to an already fragile global economy says Dana Vorisek, Senior Economist, Development Economics Prospects Group.
Although the full scope of the human and economic impact of the pandemic will not be known for some time, the toll in both respects will be high. Pre-existing macroeconomic vulnerabilities make emerging market and developing economies (EMDEs) susceptible to economic and financial stress and this may limit the capacity and effectiveness of policy support at a time it is needed most.
“Even with policy support, the economic repercussions of the coronavirus pandemic are expected to be long-lasting, as we find in our latest analysis.”
The mandatory lockdowns, together with spontaneous social distancing by consumers and producers, have wreaked havoc on global activity and trade , and have been accompanied by gyrations in financial markets and sharp declines in oil and industrial metals prices.
The long-term damage of COVID-19 will be particularly severe in economies that suffer financial crises and, in energy exporters, because of the collapse in oil prices. In the average EMDE, over a five-year horizon, a recession combined with a financial crisis could lower potential output by almost 8 percent while, in the average EMDE energy exporter, a recession combined with an oil price plunge could lower potential output by 11%.
The pandemic can also be expected to stifle productivity growth, which has been anemic during the past decade. Past epidemics were associated with 6 percent lower labor productivity and 11 percent lower investment five years later in affected countries.
As the world emerges from the pandemic, it will also be critical to strengthen the mechanisms to prepare for, prevent, and respond to epidemics before the next one strikes. Less than 5 percent of countries around the world entered this pandemic scoring in the highest tier for their ability to respond to and mitigate the spread of an epidemic. Improving health sector capacity will require international policy cooperation and coordination, especially given the pandemic’s global reach.
0 comments: