On May 13th, Assistant Secretary-General for Economic Development and Chief Economist of the UN Department of Economic and Social Affairs (DESA) Elliott Harris presented the World Economic Situation and Prospects (WESP) mid-year update.
According to Mr. Harris, the pandemic is inflicting damage on the economy at an “unprecedented scale and speed.” Indeed, the global economic collapse that the spread of COVID-19 is causing has been the worst in modern history since the Great Depression and has led to the most severe restrictions of movement of people and goods in recorded history. The world economy is projected to shrink by 3.2% in 2020, and only a modest rebound is expected for 2021.
Lockdown measures are effective in slowing the spread of the virus, but are also taking a heavy toll on jobs and income worldwide. Unemployment rates have soared worldwide, especially in low-paid jobs that depend on close contact with people. The sectors that have suffered the most are tourism, transportation, retail and hospitality. There have been more than 30 million jobs lost in the US alone and, according to some predictions, there will be an additional 160 million people who could fall into extreme poverty by 2030. “Governments need to contain the spread of the pandemic and, at the same time, to minimize its economic impact,” which requires a complicated balancing between saving lives and saving jobs, according to Harris.
What’s more, it is not a surprise that the pandemic is worsening poverty and inequality worldwide. Developing countries, especially those that depend on tourism for the majority of their income, have yet to be strongly hit by the virus, but are already feeling the toll of it on their economy. Lockdown measures also disproportionately affect low-skilled and low-wage jobs, while higher-skilled jobs are less affected. The massive losses of employment have, and will, push millions of people into extreme poverty, and it is forecast that 56% of these people will be from African countries. Thus, the crisis will likely contribute to worsening inequality not only within, but between countries as well.
Differences between countries also become clear when comparing the different fiscal packages governments have adopted to face the crisis. Developed countries have been able to create fiscal packages exceeding 10% of their GDP to face the economic fallout, while developing countries with fiscal deficits and large public debt face constraints in implementing a sufficiently large fiscal stimulus. Those are also countries that are at greater risk of falling into a debt crisis in the future. In any case, stimulus measures, though helpful, are unlikely to revive the economy until the public health situation is stabilized.
However, even after the peak of the pandemic will be over, without an effective treatment and a vaccine in place, governments and consumers will likely have to adapt to a new normal. Social distancing will likely reshape the production and consumption patterns, which in turn could increase automation of the production and delivery of goods and services. These changes would also have implications for jobs and income inequality.
Despite the threat this pandemic poses to globalization, stronger international cooperation remains critical to contain the virus and extend financial assistance to the countries most in need. The UN, which could play a crucial role in enabling multilateral financing, has called for a three-phase approach to address debt vulnerabilities of developing countries: freezing debt service for developing countries in need; considering SDG-compatible options for debt sustainability; and reforming the international debt architecture. However, in the end, “How quickly and effectively the international community will be able to contain the public health and socio-economic fallout of the pandemic will determine whether and how soon, the world can return to pre-crisis levels of economic activity,” Harris concludes.