Calibrating long-Covid vulnerabilities in 162 economies

We estimate overall long-term economic scarring will be slightly higher in emerging markets (EMs) than in advanced economies (AEs). Although AEs are underperforming EMs in the most important predictor of scarring (the crisisyear hit to GDP growth); scarring amplifiers are bigger in EMs: labour market rigidities, economic structure, financial imbalances, and limits to fiscal support.Evidence from 82 previous severe epidemics suggests that five-year trend growth falls by 3ppts compared to the pre-crisis trend. Our model of these cases suggests the hit to trend growth increases in proportion to crisis-year hit to GDP growth. The experience after the Global Financial Crisis is similar, though far more severe, partly because of the need to repair balance sheets.

Our detailed scorecard, based on 31 metrics, reveals that long-Covid scars will vary widely across economies in a way that’s masked by EM-AE or regional splits. Philippines, Peru, Colombia, and Spain appear most vulnerable, with four of the 10 most vulnerable being AEs. Australia, Japan, Norway, Germany, and Switzerland appear best placed to limit long-term scarring.

The analysis highlights the importance of policies that can mitigate long-term scarring. Massive QE by the major central banks has to some extent eased balance-sheet pressures. Such policies represent an upside risk to our medium term baseline forecast that by Q4 2024 global GDP falls 4% short of pre-crisis trend. These policies will most help those particularly vulnerable to long-Covid.

Forthcoming work will use our scorecard to highlight global forecast risks.

A detailed data scorecard covering 162 economies is available to clients by request and is published to accompany this briefing.