Addressing the Pandemic's Medium-Term Fallout in Australia and New Zealand

Author/Editor:

Geoffrey J Bannister ; Harald Finger ; Yosuke Kido ; Siddharth Kothari ; Elena Loukoianova

Publication Date:

December 11, 2020

Electronic Access:

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Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary:

While the world is focused on addressing the near-term ramifications of the COVID-19 shock, we turn attention to another important aspect of the pandemic: its fallout on medium-term potential output through scarring. Taking Australia and New Zealand as examples, we show that the pandemic will likely have a large and persistent impact on potential output, broadly in line with the experience of advanced economies from past recessions. The impact is driven by employment, capital stock, and productivity losses in the wake of an unprecedented sectoral reallocation, hightened uncertainty, and reduced migration. Maintaining fiscal and monetary policy support until the recovery is firmly entrenched and putting in place a strong structural policy agenda to counter the pandemic’s adverse effects on medium-term potential output will be important to support standards of living and strengthen economic resilience in case of renewed shocks.

Series:

Working Paper No. 2020/272

Frequency:

regular

English

Publication Date:

December 11, 2020

ISBN/ISSN:

9781513563282/1018-5941

Stock No:

WPIEA2020272

Format:

Paper

Pages:

40

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