Just as some people who recovered from Covid-19 show symptoms in the long term, it is beginning to become clear that the same will be true for the global economy once this year’s V-shaped recovery loses steam.
While $26 billion of support during the crisis and the arrival of vaccines spurred a faster recovery than many predicted, the legacies of shaky education, job destruction, wartime debt levels and growing inequalities between races, genders, generations and geographies will leave lasting scars, especially in the poorest countries.
“It’s very easy to feel relieved once things are back on track after an exhausting year,” said Vellore Arthi of the University of California, Irvine, who studies the long-term impact on health and the economy caused by previous crises. “But many of the effects we see historically last for decades, and are not easily resolved.”
Last year’s drop in GDP was the biggest since the Great Depression. The International Labour Organisation estimates the impact eliminated the equivalent of 255 million formal jobs. Researchers at the Pew Research Center say the global middle class shrank for the first time since the 1990s.
The costs will be unevenly distributed. An analysis of 31 metrics from 162 nations by Oxford Economics highlighted the Philippines, Peru, Colombia and Spain as the economies most vulnerable to long-term scars. Australia, Japan, Norway, Germany and Switzerland were deemed the best placed.
The International Monetary Fund believes advanced economies will be less affected by the coronavirus this year and beyond, while low-income countries and emerging markets will suffer more
“Getting back to the pre-Covid pattern will take time,” said Carmen Reinhart, chief economist at the World Bank. “The consequences of Covid will not be reversed in many countries. Far from it.”
Not all countries will be affected equally. The International Monetary Fund believes advanced economies will be less affected by the coronavirus this year and beyond, while low-income countries and emerging markets will suffer more. A contrast to 2009, when rich countries were hit harder. The forecast for US GDP next year is even higher than projected before Covid-19, boosted by billions of dollars in stimulus. With that said, IMF projections show few residual scars from the pandemic on the world’s largest economy.
How consumer confidence and consumption patterns will be influenced by ongoing health and labour market concerns may be one of the most important economic legacies of the crisis, just as the Great Depression in the 1930s stimulated greater saving. That’s a risk, even though many people have put more money away in the past year.
“There is genuine uncertainty about how much people’s behaviour in terms of consumption patterns will change as a result of this crisis,” said Adam Posen, president of the Peterson Institute for International Economics. “If people go back to eating in restaurants, taking leisure trips, going to the gym, a lot of those sectors will be reborn. But it’s also possible that people’s tastes genuinely change, in which case there will be more transitional unemployment, and there’s no good solution from governments for that.”
