Macroeconomic effects of Covid-19: a mid-term review

Summary

Focus

The global economy has rebounded strongly from the trough last year, as vaccination paved the way for lifting restrictions. Yet the recovery is uneven and global outlook remains uncertain. Many countries face vaccine shortages, and new virus strains threaten to derail progress made. To prepare for challenges lying ahead, it will be important to draw on experiences to date.

Contribution

This paper evaluates output losses resulting from the pandemic from historical and cross-country perspectives. It discusses challenges in managing the pandemic, notably in balancing health and economic goals. It draws some key lessons, as informed by the literature and model estimates. 

Findings

Estimates suggest a median output loss of about 6.5% in 2020. This should narrow to around 4% of the pre-pandemic trend by the end of 2021. Losses are highly dispersed across economies due to varying economic structures and societies' responses. Economic impact of various pandemic scenarios can be quantified using an economic-epidemiological model.

Abstract

This article provides an interim assessment of the macroeconomic consequences of the Covid-19 pandemic. Estimates suggest a median output loss of about 6.5% in 2020, a gap that is expected to narrow to around 4% of the pre-pandemic trend by the end of 2021. There is however a high dispersion of economic losses across economies, reflecting varying exposures to the pandemic and societies' responses. High-frequency indicators and epidemiological models provide some insights into the interactions between the evolution of the pandemic and societies' strategies for combating it, including the role of vaccination. The article draws lessons from experiences thus far and discusses challenges ahead.

JEL classification: E00, I18

Keywords: Covid-19 pandemic, health-economic tradeoffs