Question

Describe a recent world affair that you believe to be related to economics.

Answer 1

The Covid-19 pandemic is unprecedented in its global reach and impact, posing formidable challenges to policymakers and to the empirical analysis of its direct and indirect effects within the interconnected global economy. This column uses a ‘threshold-augmented multi-country econometric model’ to help quantify the impact of the Covid-19 shock along several dimensions. The results of the analysis show that the global recession will be long lasting, with no country escaping its impact regardless of their mitigation strategy. These findings call for a coordinated multi-country policy response to the pandemic.The Covid-19 pandemic is a global shock ‘like no other’, involving simultaneous disruptions to both supply and demand in an interconnected world economy. On the supply side, infections reduce labour supply and productivity, while lockdowns, business closures, and social distancing also cause supply disruptions. On the demand side, layoffs and the loss of income (from morbidity, quarantines, and unemployment) and worsened economic prospects reduce household consumption and firms’ investment. The extreme uncertainty about the path, duration, magnitude, and impact of the pandemic could pose a vicious cycle of dampening business and consumer confidence and tightening financial conditions, which could lead to job losses and investment. Key challenges for any empirical economic analysis of Covid-19 are how to identify this unprecedented shock, how to account for its non-linear effects, how to consider its cross-country spillovers (and other observed and unobserved global factors), and how to quantify the uncertainty surrounding forecasts, given its unprecedented nature. The Covid-19 shock is identified using the IMF’s GDP growth forecast revisions between January and April 2020, under the assumption that Covid-19 was the main driver of these forecast revisions. We then quantify the economic impact of the shock by comparing the forecast of the world economy from January 2020 to December 2021 with and without the Covid-19 shock, employing ‘generalised impulse response functions’. We account for sample uncertainty and report a range of likely outcomes by ‘bootstrapping’ the conditional forecasts based on the constellation of common, regional, and country-specific disturbances that the world economy had experienced in the past. Impacted by disruptions caused by the COVID-19 pandemic, India's economy is forecast to contract by 5.9% in 2020, the U.N. has said in a report, warning that while growth will rebound next year, the contraction is likely to translate into a permanent income loss.The Trade and Development Report 2020 by U.N. Conference on Trade and Development (UNCTAD) said on Tuesday that the world economy is experiencing a deep recession amid a still-unchecked pandemic.In addition to the substantial burden on healthcare systems, COVID-19 has had major economic consequences for the affected countries. The COVID-19 pandemic has caused direct impacts on income due to premature deaths, workplace absenteeism, and reduction in productivity and has created a negative supply shock, with manufacturing productive activity slowing down due to global supply chain disruptions and closures of factories. The June 2020 Global Economic Prospects describes both the immediate and near-term outlook for the impact of the pandemic and the long-term damage it has dealt to prospects for growth. The baseline forecast envisions a 5.2 percent contraction in global GDP in 2020, using market exchange rate weights—the deepest global recession in decades, despite the extraordinary efforts of governments to counter the downturn with fiscal and monetary policy support.