## Revisiting Covid Scarring in Emerging Markets

_IMF Working Papers, August 4, 2023_

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## Bibliographic details
- Authors: Chris Jackson, Jason Lu
- Published: August 4, 2023
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9798400252136.001

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### Overview and purpose
- Authors: Chris Jackson, Jason Lu
- Date: August 4, 2023
- Type: IMF Working Papers, Working Paper No. 2023/162
- Pages: 26
- Volume: 2023
- Issue: 162
- DOI: https://doi.org/10.5089/9798400252136.001
- Stock No: WPIEA2023162
- ISBN: 9798400252136
- ISSN: 1018-5941
- Summary purpose: Examine the impact of Covid-19 on output in Emerging Markets to date and implications for projections of economic scarring, and provide alternative sets of medium-term projections to indicate potential magnitudes.

### Key findings on scarring and recovery
- The Covid-19 pandemic is expected to result in large and persistent losses in economic output, referred to as scarring.
- These losses were expected to be more severe in Emerging Markets than in Advanced Economies.
- While Covid has had a material impact on activity, the recovery has been stronger than initially expected.
- Positive data surprises on recovery have been increasingly treated as transitory rather than as signals about the state of scarring.
- The composition of output losses from Covid has been qualitatively different from past large shocks:
  - Historical evidence suggests the main driver of scarring is weak productivity.
  - Covid losses have so far been more skewed to employment with a smaller than usual impact on productivity.
- Implication: Scarring, while substantial, may be ultimately less severe than initially feared, at least over the medium term.

### Projections, scenarios, and analytical approach
- The paper provides alternative sets of medium-term projections to indicate potential magnitudes of scarring.
- Emphasis on distinguishing transitory positive surprises from persistent structural damage when updating scarring estimates.
- Focus on decomposing output losses into productivity-driven versus employment-driven components to assess long-run scarring risk.

### Policy-relevant implications (from analysis)
- Reassess scarring projections in light of stronger-than-expected recoveries and the employment-skewed nature of losses.
- Prioritize policies that address labor market recovery and reintegration given the observed skew toward employment losses.
- Monitor productivity indicators closely given historical role of productivity weakness in driving scarring, despite smaller productivity impacts to date from Covid.

### Subject classification and keywords
- Subject: COVID-19, Emerging and frontier financial markets, Employment, Financial markets, Health, Labor, Production, Total factor productivity, Wages
- Keywords: COVID-19, Emerging and frontier financial markets, Emerging Markets, Employment, GDP growth data, Global, medium-term output, output loss, POST-Covid GDP loss, revisiting Covid, scarring, scarring estimate, Total factor productivity, Wages

*IMF Working Paper No. 2023/162 — “Revisiting Covid Scarring in Emerging Markets”, Chris Jackson and Jason Lu, August 4, 2023.*

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_Source: https://www.imf.org/en/publications/wp/issues/2023/08/04/revisiting-covid-scarring-in-emerging-markets-537590_