Covid-19 is likely to cause much greater economic damage than any recent disease outbreak or economic crisis (Shretta, 2020). As of April 2020, the IMF is forecasting that the global economy is likely to contract by -3% in 2020 (IMF, 2020c, p. 1) and that ‘the cumulative loss to global GDP over 2020 and 2021 from the pandemic crisis could be around 9 trillion dollars’, making it the worst economic downturn since the Great Depression (Gopinath, 2020). Economic recovery could be swift (the IMF currently forecasts that the world’s economies will grow by 5.8% in 2021 (IMF, 2020c, p. 1) but this will require decisive and effective action to control the disease and restore economic activity including global value chains.
Covid-19’s economic impacts are broader and more severe than most past crises. The disease has been highly infectious in comparison with past major disease outbreaks, spreading rapidly to reach almost every country in the world and infecting more than four million people (Madhav et al., 2018, p. 317). In addition, while previous pandemics have typically emerged in poorer countries and have had their greatest impact there, Covid-19 emerged in an important economic hub and has affected countries central to the global economy: at the beginning of March, the list of the ten countries most affected by Covid-19 was ‘almost identical to the list of the ten largest economies in the world (Iran and India are the exceptions)’ (Baldwin & di Mauro, 2020, p. 2). The impacts of the disease itself (illness and absenteeism), the policy measures being taken to control its spread (closing businesses and schools, and restricting travel and gatherings), and the behaviour changes that individuals are making to avoid exposure (avoiding public places and reducing consumption, especially in social settings) combine to simultaneously affect supply and demand at multiple points in the economy. Most of the economic impacts of Covid-19, as has been the case with past epidemics and pandemics, are a side effect of the measures taken to control the spread of the disease, rather than a direct effect of the disease itself.
Covid-19 has greatly disrupted global value chains, which now account for more than two-thirds of world trade (Dollar, 2019, p. 1), and disruptions are likely to continue to propagate back and forth through these networks as countries restrict economic activity to control the disease (Baldwin & Freeman, 2020; Jonas, 2013, p. 10). The experience of value chain disruption during the pandemic is likely to feed into future debates about deglobalisation. The manufacturing sector will suffer disruption through shutdowns, labour shortages, supply chains and
transportation disruptions, and declining demand as customers cancel or delay purchases and investments (Baldwin & di Mauro, 2020, p. 4). Small and medium-sized firms that participate strongly in global value chains, and manufacturers of durable goods, are particularly vulnerable (Baldwin & di Mauro, 2020, p. 4; Baldwin & Tomiura, 2020, p. 61; Shretta, 2020). World merchandise trade is expected to decline by between 13% and 32% in 2020 (World Trade Organization, 2020, p. 1). Large drops in demand for and prices of oil and industrial metals
(World Bank, 2020a, pp. 3, 8) will cause serious economic harm to countries that export these commodities (IMF, 2020c, pp. 5–6).
Agricultural production and prices have not yet been strongly affected by Covid-19, with the exception of crops grown for biofuels and industrial purposes (World Bank, 2020a, pp. 7–8), and food security is not currently threatened at the global level. Agricultural commodity prices are stable, production levels and stocks of staple foods are near record highs, the prospects for the next crop are good, and demand for biofuel crops is likely to contract (Pangestu, 2020; Schmidhuber, Pound, & Qiao, 2020, p. 7; World Bank, 2020a, p. 10). However, agriculture and
food security are at risk of disruption if travel restrictions lead to labour shortages, reduced access to agricultural inputs, or barriers to transporting produce, if countries restrict trade in food, or if economic disruption reduces people’s incomes and purchasing power.
Countries, regions, and cities where service industries account for a large share of GDP are likely to be badly affected (Gong, Zhang, Yuan, & Chen, 2020, p. 8). Covid-19 is likely to lead to lower consumer and business confidence and decreased personal spending across a broad range of categories (Shretta, 2020). Recovery in the service sector is likely to be slow, and some economic output will be permanently lost. The travel and tourism sector has been one of the hardest hit (Shretta, 2020), as travel restrictions are more widespread and stringent than in any previous pandemic response and the combination of economic recession and individual reluctance to travel is expected to depress international travel significantly longer than in previous pandemics.
Despite substantial progress on reducing global poverty in the past thirty years, there is a significant chance that Covid-19 could lead to 2020 being the first year with an increase in poverty levels since 1990 (Sumner, Hoy, & Ortiz-Juarez, 2020). The anticipated economic downturn will affect people in or near poverty badly, and is likely to result in millions of people falling below the $1.90/day international extreme poverty line (Laborde, Martin, & Vos, 2020). Informal employment is widespread in most low- and middle-income countries and is a critical source of livelihood for a large proportion of the population. Informal workers, notably homebased workers, domestic workers, street vendors and market trader, and waste pickers are particularly vulnerable during the Covid-19 crisis due to the insecurity of their work, lack of labour rights, and inability to rely on social safety nets. Remittances from overseas workers have in the past been very important in helping to compensate for crises, but in the current situation, workers abroad are also vulnerable, and globally, remittances are projected to drop by about 20% in 2020 due to falling wages and unemployment of migrant workers (World Bank, 2020b).
Women and girls are particularly vulnerable to economic hardship, as they are generally in more precarious employment than men to begin with, they bear a greater burden of unpaid care work which limits their economic participation, and they suffer increased incidences of gender-based violence during crises.