Giving Compass' Take:
- Researchers at Brookings explore the various long-term fiscal, social, and health impacts of COVID-19 on a global scale.
- What is the role of donors in helping strengthen COVID-19 recovery strategies?
- Learn about the long-term effects of COVID-19 on extreme poverty.
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The impact of the pandemic on world GDP growth is massive. The COVID-19 global recession is the deepest since the end of World War II (Figure 1). The global economy contracted by 3,5 percent in 2020 according to the April 2021 World Economic Outlook Report published by the IMF, a 7 percent loss relative to the 3.4 percent growth forecast back in October 2019. While virtually every country covered by the IMF posted negative growth in 2020 (IMF 2020b), the downturn was more pronounced in the poorest parts of the world.
The impact of the shock is likely to be long-lasting. While the global economy is expected to recover this year, the level of GDP at the end of 2021 in both advanced and emerging market and developing economies (EMDE) is projected to remain below the pre-virus baseline (Figure 3). As with the immediate impact, the magnitude of the medium-term cost also varies significantly across countries, with EMDE suffering the greatest loss. The IMF (2021) projects that in 2024 the World GDP will be 3 percent (6 percent for low-income countries (LICs)) below the no-COVID scenario. Along the same lines, Djiofack et al. (2020) estimate that African GDP would be permanently 1 percent to 4 percent lower than in the pre-COVID outlook, depending on the duration of the crisis.
The pandemic triggered a health and fiscal response unprecedented in terms of speed and magnitude. At a global scale, the fiscal support reached nearly $16 trillion (around 15 percent of global GDP) in 2020. However, the capacity of countries to implement such measures varied significantly. In this note, we identify three important pre-existing conditions that amplified the impact of the shock:
- Fiscal space: The capacity to support household and firms largely depends on access to international financial markets,
- State capacity: Fast and efficient implementation of policies to support household and firms requires a substantial state capacity and well-developed tax and transfer infrastructure; and
- Labor market structure: A large share of informal workers facing significant frictions to adopt remote working, and high levels of poverty and inequality, deepen the deleterious impact of the crisis.
Read the full article about the long-term impacts of COVID-19 by Eduardo Levy Yeyati and Federico Filippini at Brookings.