Market Overview

Covid Will Leave Deep Scars in World Economy Even After Recovery

Just as some patients recovering from Covid-19 suffer long-lasting symptoms, it’s becoming clear that the same will be true for the global economy once this year’s V-shaped rebound fades. While $26 trillion worth of crisis support and the arrival of vaccines have fueled a faster recovery than many anticipated, the legacies of stunted education, the destruction of jobs, war-era levels of debt and widening inequalities between races, genders, generations and geographies will leave lasting scars, most of them in the poorest nations.

“It’s very easy after a gruelling year or more to feel really relieved that things are back on track,” said Vellore Arthi of the University of California, Irvine, who has examined the long-term health and economic hit from past crises. “But a lot of the effects that we see historically are often for decades and are not easily addressed.”

All told, the decline in gross domestic product last year was the biggest since the Great Depression. The International Labour Organization estimates it cost the equivalent of 255 million people full-time jobs. Researchers at the Pew Research Centre reckon the global middle class shrank for the first time since the 1990s.

The costs will fall unevenly. A scorecard of 31 metrics across 162 nations devised by Oxford Economics Ltd. highlighted the Philippines, Peru, Colombia and Spain as the economies most vulnerable to long-term scarring. Australia, Japan, Norway, Germany and Switzerland were seen as best placed.

Not all countries will be affected equally. The International Monetary Fund sees advanced economies less affected by the virus this year and beyond, with low-income countries and emerging markets suffering more — a contrast to 2009, when rich nations were hit harder. With U.S. GDP next year forecast to be even bigger than projected before Covid-19, propelled by trillions of dollars in stimulus, the IMF’s projections show little residual scarring from the pandemic for the world’s No. 1 economy.

The World Bank warned in a January report of “a decade of global growth disappointments” unless corrective action is taken. It estimated global output was on course to be 5% lower by 2025 than its pre-pandemic trend and that the growth rate at which inflation ignites is set to drop below 2% in the next decade, having already declined to 2.5% in the 2000s from 3.3% in the prior decade.

Covid Will Leave Deep Scars in World Economy Even After Recovery, Bloomberg, Apr 19

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