As Covid-19 shows no sign of abating, the damage it has caused to the global economy continues to grow. As a result, the IMF is now predicting a global economic contraction of almost 5% this year, significantly less than the 3% they forecast in April.
The pessimistic outlook from the IMF is partly because Covid-19 continues to wreak havoc, but also because the downturn was underestimated back in April.
As the months of lockdown go on, the extent of the economic damage is becoming increasingly apparent. Firstly, the short-term hit on consumer spending is larger than expected, but most importantly the long-term impact on employment is becoming clearer.
With many businesses having gone bankrupt, millions of jobs around the world have not only been lost, but disappeared entirely. In the IMF’s report, they refer to this as “economic scarring” as it will dampen the global economy’s ability to bounce back quickly.
In addition, firms that are able to survive the crisis will almost certainly not go immediately back to business as usual. Instead, it is likely that productivity will be lost as businesses open up cautiously and take extra measures to improve safety and hygiene.
Despite all this doom and gloom, there is hope that economies will rebound next year and a semblance of normality will return. This is of course assuming that the coronavirus is brought under control in the next few months and we will not be hit with a second wave at the end of the year. For now, all we can do is hope!
THINK LIKE AN ECONOMIST!
Q1. What is meant by the term economic contraction?
Q2. Explain the link between consumer spending and economic growth.
Q3. Analyse the impact of Covid-19 on unemployment in an economy of your choice.
Q4. Discuss the term “economic scarring”. What other scars will Covid-19 leave on economies around the world?
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