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© 2023 International Monetary Fund
WP/23/162
IMF Working Paper
Research Department
Revisiting Covid Scarring in Emerging Markets
Prepared by Chris Jackson and Jason Lu*
Authorized for distribution by Rafael Portillo
August 2023
IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
ABSTRACT: The Covid-19 pandemic is expected to result in large and persistent losses in economic output, known as scarring. These losses were expected to be more severe in Emerging Markets than in Advanced Economies. This paper examines the impact of Covid on output in Emerging Markets so far and its implications for projections of economic scarring. While Covid has had a material impact on activity, the recovery has been stronger than initially expected. We find that these positive data surprises have over time been treated increasingly as transitory rather than a signal for the state of scarring. Second, we show that the composition of output losses has been qualitatively different from past last shocks. History suggests that the main driver of scarring is weak productivity. Covid losses, however, have so far been more skewed to employment with a smaller than usual impact on productivity. We argue that these findings suggest that scarring, while substantial, may be ultimately less severe than initially feared, at least over the medium term. We provide alternative sets of medium-term projections to indicate potential magnitudes.
RECOMMENDED CITATION: Jackson, C. and J. Lu, 2023, “Revisiting Covid Scarring in Emerging Markets”
| JEL Classification Numbers: | E32, N10, O47 |
| Keywords: | COVID-19; scarring; medium-term output; Emerging Markets |
| Author’s E-Mail Address: | CJackson3@imf.org, Jlu2@imf.org |
| JEL Classification Numbers: | E32, N10, O47 |
| Keywords: | COVID-19; scarring; medium-term output; Emerging Markets |
| Author’s E-Mail Address: | CJackson3@imf.org, Jlu2@imf.org |
Title Page
WORKING PAPERS
Revisiting Covid Scarring in Emerging Markets
Prepared by Chris Jackson and Jason Lu
Contents
1. INTRODUCTION
2. THE EVOLUTION OF POST-COVID GDP LOSSES AND SCARRING ESTIMATES
3. ACCOUNTING FOR COVID-RELATED OUTPUT LOSSES
4. IMPLICATIONS FOR THE MEDIUM TERM
5. CONCLUSION
REFERENCES
FIGURES
Figure 1: Deviation in GDP from pre-pandemic forecast
Figure 2: Pre-war GDP relative to pre-pandemic
Figure 3: GDP relative to pre-pandemic trend in
Figure 4: Estimated post-Covid medium-term scarring for 2024 over time
Figure 5: Stylized example of forecast revisions
Figure 6: GDP growth data surprises
Figure 7: Revisions to scarring (median)
Figure 8: WEO and Consensus scarring estimates
Figure 9: Decomposition of realized output losses relative to pre-pandemic trend
Figure 10: Decomposition of realized output losses relative to pre-pandemic trend using average hours
Figure 11: Decomposition of Covid-related output losses and other past shocks
Figure 12: Alternative paths for the deviation in the level of TFP
Figure 13: Total credit to non-financial corporations
Figure 14: Estimated impact of lower capital on
Figure 15: Non-performing loans and provisions
Figure 16: Unemployment rate
Figure 17: Level of employment
Figure 18: Impact of crises on the level of employment
TABLES
Table 1: Medium-term estimates of scarring