A Policy Research Working Paper (PRWP) from World Bank has projected 3.9% decline in global gross domestic product (GDP) as a preliminary estimate.
According to PRWP dated 10th April 2020, "A baseline global pandemic scenario sees gross domestic product fall by 2 percent below the benchmark for the world, 2.5 percent for developing countries, and 1.8 percent for industrial countries. The declines are nearly 4 percent below the benchmark for the world, in an amplified pandemic scenario in which containment is assumed to take longer and which now seems more likely. The biggest negative shock is recorded in the output of domestic services affected by the pandemic, as well as in traded tourist services ".
As put by the Paper, " It is still too early to make an assessment of the impact of the virus based on full statistical evidence. High frequency data are providing some indicators, but it is hard to assess the depth and the breadth of the pandemic as it spreads, and to precisely estimate how long it will take countries to return to normal activity levels".
PRWP captioned 'The Potential Impact of COVID-19 on GDP and Trade - A Preliminary Assessment' has simulated COVID-19's potential impact on GDP and trade with help of a standard global computable general equilibrium model. It models the shock as underutilization of labor and capital, an increase in international trade costs, a drop in travel services, and a redirection of demand away from activities that require proximity between people.
PRWP has focused four factors:
1) the direct impact of a reduction in employment;
2) the increase in costs of international transactions;
3) the sharp drop in travel; and
4) the decline in demand for services that require proximity between people.
PRWP has emphasized the limitation of its research amidst unfolding crisis. It thus says: "Our analysis is likely to underestimate the potential economic costs of the epidemic. We do not fully capture several important channels, such as the uncertainty-driven contraction in demand and FDI, and other real effects of a financial shock. We capture some aspects of global value chains trade through input-output linkages and assumptions that mimic the durability of relationships between firms in value chains but plan to extend the analysis using a richer data set. We have examined, but not yet finalized, the effects of raising domestic trade costs as well as demand switching away from activities requiring direct contact with other people. Our analysis will evolve as we bring assumptions and scenarios in line with more recent health and economic indicators". |
