Covid will leave deep scars in world economy

Even after recovery, many nations will continue to struggle

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 fuelled 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.

Long-term effects

“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 longterm 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 Organisation 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 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 IMF sees advanced economies less affected by the virus this year and beyond, with emerging markets suffering more — a contrast to 2009, when rich nations were hit harder. But with US GDP next year forecast to be bigger than projected before Covid-19, the IMF’s numbers show little scars for the top global economy.

Getting back to the pre-Covid standard will take time. The aftermath of Covid isn’t going to reverse for a lot of countries. Far from it.”

Carmen Reinhart | World Bank chief economist

AFP Staff at an assembly line at a Dongfeng Honda factory in Wuhan. Data shows that China’s economy expanded at its fastest pace in the first quarter. But globally, researchers say the middle class shrank for the first time since the 1990s.