After-Effects of the COVID-19 Pandemic: Prospects for Medium-Term Economic Damage

IMF Working Papers, July 30, 2021

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Canonical URL: After-Effects of the COVID-19 Pandemic: Prospects for Medium-Term Economic Damage

Authors: Philip Barrett, Sonali Das, Giacomo Magistretti, Evgenia Pugacheva, Philippe Wingender
Published: July 30, 2021
Series: IMF Working Papers
DOI: https://doi.org/10.5089/9781513587905.001

The COVID-19 pandemic has led to a severe global recession with differential impacts within and across countries.
Deep recessions often leave long-lived scars, particularly to productivity.
Financial instabilities—typically associated with worse scarring—have been largely avoided in the current crisis so far.
Medium-term output losses are anticipated to be lower than after the global financial crisis, but they are still expected to be substantial.
The degree of expected scarring varies across countries, depending on the structure of economies and the size of the policy response.
Emerging market and developing economies are expected to suffer more scarring than advanced economies.

Productivity declines are a primary channel through which deep recessions leave long-lived scars.
The structure of economies influences vulnerability to persistent damage.
The size and design of policy responses affect the extent of medium-term output losses.
Avoidance of widespread financial instability in this crisis mitigates some potential for worse scarring relative to past crises.

Medium-term output losses: expected to be lower than after the global financial crisis of 2008-2009, yet still substantial (no numeric magnitudes provided on the page).
Relative vulnerability: Emerging market and developing economies > Advanced economies (in expected scarring).

Large and well-targeted policy responses can reduce expected scarring by supporting firms, workers, and productivity-preserving investments.
Continued attention to financial stability helps limit channels that amplify long-lived damage.
Country-specific policies should account for economic structure when designing recovery and resilience measures.