The macroeconomic spillover effects of the pandemic on the global economy

Key takeaways

• Given the historical persistence of economic activity, the reduction of GDP due to confinement measures is likely to drag on over several quarters. The total GDP shortfall could be as much as twice that implied by the direct initial effects of confinement.
• This persistence reflects in part two types of spillovers across countries. One is due to the risk that uncoordinated confinements lead to repeated virus outbreaks and confinements across the globe. Another is the more traditional trade and financial integration interlinkages.
• Economic spillovers and spillbacks across the major economic blocs are large. There is no immunity from the economic effects if the epidemic is controlled in only one or two regions. Countries should adopt confinement, border control and macroeconomic policies that internalise these global considerations.

Online appendix