Global GDP will drop three percent below pre-pandemic estimates by the end of 2021, with many Western nations seeing “deeper and longer-lasting” effects compared to China and other Asian economies, a study suggests.
Moreover, nations that adopted less stringent lockdowns – Sweden, for example – will not be shielded from the economic losses of COVID-19 either, owing to spillovers from other countries.
Published by the National Bureau of Economic Research, the macroeconomic study captures the economic volatility caused by the last forty years of “rare events”. It uses this historical data to forecast the longer term effects of the pandemic on individual economies.
The research suggests that economic growth will be stymied in at least 80% of the world’s advanced nations and many emerging market economies due to “excess global uncertainty”.
Two Cambridge economists conducted the study with an international team of researchers. They argue that the pandemic will lead to a “significant fall in world output” – the consequences of which could last much of the dawning decade.
“The COVID-19 pandemic is a global shock like no other, involving simultaneous disruptions to both supply and demand in an interconnected world economy,” said co-author Dr Kamiar Mohaddes, a Cambridge Judge Business School economist.
“Infections reduce labour supply and productivity, while lockdowns, business closures, and social distancing also cause supply disruptions. On the demand side, redundancy and the loss of income from death, quarantines, and unemployment plus worsened economic prospects reduce household consumption and firms’ investment.”
The study from Mohaddes, a Fellow of King’s College at Cambridge, and colleagues, including M. Hashem Pesaran, Fellow of Trinity College, uses the IMF’s GDP growth forecast revisions between January and April 2020 to identify the COVID-19 economic shock.
Image: A lone walker in a shopping district of Leeds, UK, during lockdown.
Credit: Gary Butterfield
Reproduced courtesy of the University of Cambridge