Could Renewed Social Unrest Hinder the Recovery?

IMF Blog, July 13, 2021

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Protests driven by the pandemic’s economic fallout are on the rise, with potentially long-lasting economic consequences.
According to the latest Global Peace Index, the number of riots, general strikes and anti-government demonstrations around the world have increased by a staggering 244 percent in the last decade.
Lockdowns and fears of contagion forced a temporary lull, but in virtually every region of the world demonstrators are making a comeback.
Causes range from frustration over governments’ handling of the crisis to mounting inequality and corruption—factors that tend to heighten existing tensions and disparities, and have led to social unrest in the aftermath of previous pandemics.

The Reported Social Unrest Index (RSUI) — an index developed by IMF staff based on press coverage — is used to quantify social unrest and identify unusually large increases (social unrest events).
The working paper estimates the macroeconomic impact of social unrest over the period 1990-2019.
Social unrest events are classified into three categories based on trigger causes: political, socio-economic, and mixed.

A less significant shock equivalent to one standard deviation in the RSUI can reduce GDP by about 0.2 percentage points six months after the shock (example: demonstrations following former Mexican President Enrique Peña Nieto’s election in 2012 or Chile’s presidential election in 2013).
Large shocks (example: July 2019 protests in Hong Kong SAR and the yellow vest protests of 2018 in France) that meet the social unrest event threshold produced an increase of 4 standard deviations in the RSUI and caused a GDP reduction of about 1 percentage point.
The GDP effects appear driven by:
- Sharp contractions in manufacturing and services (sectoral dimension).
- Contractions in consumption (demand dimension).
Mechanisms: social unrest affects activity by lowering confidence and increasing uncertainty.

The adverse impact of unrest is typically larger in countries with weak institutions and limited policy space.
Countries with weak fundamentals pre-pandemic are expected to suffer the most if social discontent turns into unrest.
Impact by event type:
- Protests motivated by socio-economic concerns result in sharper GDP contractions compared to those associated mainly with politics/elections.
- Demonstrations triggered by a combination of socio-economic and political factors have the biggest impact (examples noted: Tunisia and Thailand earlier this year).

Public protests can be an important expression of the need to change policy; governments need to listen and respond.
Policies should aim at giving everyone a fair shot at prosperity by:
- Boosting employment.
- Containing the long-term impact of the crisis.
- Protecting those who have been left behind.
To ensure success and avoid strife, reforms require a broad social dialogue on the role of the state and on how to sustainably finance budget pressures.
Without such inclusive policy responses, the economic costs of the pandemic will likely be compounded by those of ensuing unrest.

Metodij Hadzi-Vaskov, Samuel Pienknagura, Luca Ricci — July 13, 2021

Staff Discussion Note
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