Which economies are most vulnerable to covid-19’s long-term effects?
THE HEALTH effects of covid-19 can in some cases persist for months, turning an acute illness into a chronic one. New research suggests that, for many countries, the economic effects of the pandemic will also last longer than expected. Modelling by Oxford Economics, a consultancy, sheds new light on the lasting effects of covid-19. Their research forecasts which countries are most susceptible to long-term economic scarring, and which could be first to bounce back.
The researchers drew on evidence from past crises, including Ebola and SARS, and the global financial crash of 2007-09, to create 31 measures of economic vulnerability, covering areas such as an economy’s structure, GDP growth and consumer confidence. They expect that, on average, emerging markets will suffer more in the long term than advanced economies. The single most important predictor of scarring—the decline in GDP growth this year—tends to be larger in advanced economies. But other factors, such as labour-market rigidities and limits to fiscal support, threaten emerging markets more.
Yet the distinction between emerging and advanced economies masks large variations: the Philippines and India have especially bleak growth outlooks, whereas China and Brazil are expected to perform better (see chart). The Philippines ranked worst overall in the study largely because of its labour market, with high unemployment and skills shortages, and the economy’s dependence on tourism. Among advanced economies, the researchers reckon that Britain, Spain and France will take longer to return to growth than Australia, Sweden and America.
In regional terms, the Middle East and Latin America have the worst prospects for recovery, closely followed by Africa. North America is the least vulnerable region, thanks to relatively low GDP declines and strong fiscal-stimulus packages. European countries occupy the ten lowest spots for advanced economies on the Oxford Economics scorecard. But there are regional disparities, too. For example, France ranks as one of the most vulnerable nations in the study, largely because of its weak GDP growth and low consumer confidence, but neighbouring Germany scores well on both counts.
As well as identifying why some countries will recover more quickly than others, the research suggests how governments can best prepare for future shocks. For example, some emerging markets may look at diversifying away from tourism, while advanced economies could reduce their dependence on the hospitality industry to drive consumption. There is cause for optimism, too: during past epidemics, average growth fell by three percentage points in affected countries during the crisis, but afterwards growth was slightly better than the five-year average before the crisis. In other words, there is room for a rebound, but some will bounce higher than others.
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