SMA hosted a speaker session presented by Dr. Carlos Arteta (World Bank) as a part of its SMA UK MoD Speaker Series. Dr. Arteta first stated that the global economy is projected to suffer the deepest and most synchronized recession since WWII, and countries with emerging market and developing economies (EMDEs) will likely be disproportionally affected. He then spoke about the global growth prospects in the near-term. Restrictions implemented as a result of this pandemic have led to work closures, international travel restrictions, school closures, etc., which have negatively impacted global GDP. Additionally, traditional economic indicators, such as trade and tourism, have collapsed. As a result, global GDP is projected to contract by 5%, but on a regional scale, regions like Latin America and the Caribbean will be disproportionally affected by upwards of 9%. Furthermore, 90% of per capita income in developing regions will decline, pushing millions of people into extreme poverty. Next, Dr. Arteta explained how the situation could worsen. He suggested that a deeper downturn of the global economy could occur with a more protracted pandemic, reescalation of trade tensions, or ineffective support policies. Additionally, a slower economic recovery from the recession could result from longer-lasting effects on households and firms, larger-than-expected adverse impact on potential growth, and/or weaker development outcomes. Dr. Arteta then used data displaying the spread of COVID-19 cases in advanced economies vs. EDMEs to show that for some of these countries, it is unclear if we have reached the peak of the virus yet; so, there may be worse conditions to come. Moreover, growth projections are fragile, and there is a large degree of uncertainty in the forecast for what will come. Dr. Arteta also addressed the question of what the long-term implications of COVID-19 will be, naming weaker potential output, investment, and productivity over the long term as likely results. He stated that potential growth has been declining in many regions already (pre-COVID), and per capita incomes are projected to plunge. Both of these will be met with sharper declines when accompanied by a recession like the one the world is experiencing now. Dr. Arteta further explained that this recession is unique in that it was triggered by a pandemic. There is also little accurate data regarding the economic effects of a global pandemic, and the projections being made are based on data from regional pandemics, such as SARS, MERS, and Ebola. Therefore, it is ultimately unclear as to how magnanimous the global economic effects of the COVID-19 pandemic will be. Finally, Dr. Arteta emphasized that the first priority for policymakers should be to address the immediate health crisis by supporting healthcare systems, providing aid to vulnerable groups, and cooperating globally to ensure a smooth flow of critical goods and debt relief to EMDEs. He also stressed the importance of sustained long-term growth in the wake of the pandemic. Designing reforms to improve flexibility in product and labor markets, stimulating investment, and creating global policies to address global public health challenges are all ways to prepare for another global recession of this scale.
Please email Ms. Nicole Peterson (email@example.com) for access to a recording of this speaker session.
To view Dr. Arteta’s related report, please visit http://www.worldbank.org/en/publication/global-economic-prospects.