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Abstract
The global economy is climbing out from the depths to which it had plummeted during the Great Lockdown in April. But with the COVID-19 pandemic continuing to spread, many countries have slowed reopening and some are reinstating partial lockdowns to protect susceptible populations. While recovery in China has been faster than expected, the global economy’s long ascent back to pre-pandemic levels of activity remains prone to setbacks.
Abstract
Global prospects remain highly uncertain one year into the pandemic. New virus mutations and the accumulating human toll raise concerns, even as growing vaccine coverage lifts sentiment. Economic recoveries are diverging across countries and sectors, reflecting variation in pandemic-induced disruptions and the extent of policy support. The outlook depends not just on the outcome of the battle between the virus and vaccines (Figure 1.1)—it also hinges on how effectively economic policies deployed under high uncertainty can limit lasting damage from this unprecedented crisis.
Abstract
The COVID-19 pandemic has led to a severe global recession with differential impacts within and across countries. A key question facing policymakers is the extent of persistent damage (scarring) that may result from this crisis. This chapter examines the possible persistent effects of the pandemic and the channels through which they may occur. History suggests that deep recessions often leave long-lived scars, particularly to productivity. Importantly, financial instabilities—typically associated with worse scarring—have been largely avoided in the current crisis so far. The concentration of the pandemic’s initial impact on more highly contact-intensive service sectors has generated lower sectoral spillovers than in most previous recessions, but its sheer size means that it still represents a large shock to the broader economy. Expected medium-term output losses from the pandemic are substantial, with output for the world in 2024 expected to be about 3 percent lower than anticipated pre-pandemic. Losses are anticipated to be lower than after the global financial crisis, assuming that the pandemic is brought under control globally by the end of 2022. The degree of expected scarring varies across countries, depending on the structure of economies and the size of the policy response. Emerging market and developing economies are expected to suffer more scarring than advanced economies. To limit scarring, policymakers should continue to provide support to the most-affected sectors and workers while the pandemic is ongoing. Remedial policies for the setback to human capital accumulation, measures to lift investment, and initiatives to support reallocation (retraining, reskilling, and insolvency procedures) will be key to address long-term GDP losses and the rise in inequality.
Abstract
Despite remarkable adaptation and extraordinary policy support in many economies, economic turmoil and labor market dislocations from the COVID-19 pandemic shock continue, with highly unequal effects across workers. Youth and the lower-skilled are among the most heavily impacted, with sharp rises in unemployment rates, which already tend to be at higher levels. Some of these effects reflect the asymmetric, sectoral, and occupational nature of the COVID-19 shock, with less-skill-intensive sectors tending to be hit harder. The shock is also accelerating preexisting employment trends, hastening a shift away from sectors that are more vulnerable to automation. Worker reallocation across sectors and occupations is more likely after an unemployment spell, but it comes at a high cost, as average earnings fall for those who switch. Job retention policies—those aimed at maintaining existing employment matches—can help reduce job separations, particularly for the lower-skilled, while measures to support worker reallocation can boost job finding prospects. A new, model-based analysis shows how job retention policies are extremely powerful at reducing scarring and mitigating the unequal impacts of a pandemic shock across workers, while reallocation policies supporting job creation can help ease the adjustment to the more permanent effects of the COVID-19 shock on the labor market. Retention measures are best while the shock is acute and social distancing high to preserve ultimately viable job matches, with support relying more on reallocation measures as the pandemic subsides. Careful monitoring of the intensity of the pandemic (including cases and deaths, the extent of social distancing, and rollout of vaccines) is needed to gauge when the economy can cope with the reduction of job retention support and switch toward greater reliance on reallocation.
Abstract
The authors of this chapter are Philipp Engler, Roberto Piazza (team leader), and Galen Sher, with contributions from Chiara Fratto, Brendan Harnoys Vannier, Borislava Mircheva, David de Padua, and Hélène Poirson, and support from Eric Bang, Ananta Dua, Chanpheng Fizzarotti, Ilse Peirtsegaele, and Daniela Rojas Fernandez. The chapter benefited from insightful comments by Christopher Erceg and internal seminar participants. Refet Gürkaynak was a consultant for the project.
Abstract
One year into the COVID-19 pandemic, the accumulating human toll continues to raise concerns, even as growing vaccine coverage lifts sentiment. High uncertainty surrounds the global economic outlook, primarily related to the path of the pandemic. The contraction of activity in 2020 was unprecedented in living memory in its speed and synchronized nature. But it could have been a lot worse. Although difficult to pin down precisely, IMF staff estimates suggest that the contraction could have been three times as large if not for extraordinary policy support. Much remains to be done to beat back the pandemic and avoid divergence in income per capita across economies and persistent increases in inequality within countries.
Abstract
The following remarks were made by the Chair at the conclusion of the Executive Board’s discussion of the Fiscal Monitor, Global Financial Stability Report, and World Economic Outlook on March 25, 2021.