The Global Economy Post-COVID-19

By Thomas S. Axworthy

August 2020

China Today

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The World Bank says the world has changed as a result of the COVID-19 pandemic and who could disagree? Its June 2020 Global Economic Prospects Report described how the world is enduring the deepest recession in decades with little end in sight, except perhaps in China. The Organisation for Economic Co-operation and Development (OECD) is similarly gloomy in its June 2020 Economic Outlook. It forecasts that global economic growth will fall by 6 percent in 2020 with unemployment at over 9 percent, and if a second wave of COVID-19 hits, the results will be even worse with European growth projected to fall by over 11 percent, the United States by over 8 percent, Russia by 10 percent, Brazil by 9 percent, India by 7 percent and China by 3 percent. Given these uncertainties, China, for one, has prudently not set a growth goal for 2020.

No one knows if there will be recurring attacks of the coronavirus but the current situation is bad enough: As of July 2020 there have been over 12 million reported cases, over half a million deaths, losses of 305 million full-time jobs and fears that 1.6 billion workers in the informal economy could suffer “massive damage" to their livelihoods, according to the UN's International  Labour Organization.

And the economic impact of COVID-19 is not likely to be a short-term blip. The World Bank report writes that: “Over the longer horizon, the deep recessions triggered by the pandemic are expected to leave lasting scars through lower investment, an erosion of human capital through lost work and schooling, and fragmentation of global trade and supply linkages.” A July 2020 McKinsey briefing confirms the concerns of the World Bank: McKinsey found, in a global survey of those who make household financial decisions, that they are reporting lower income, savings and spending with 20 to 60 percent of the decision-makers fearing for their own jobs. Roughly half of those surveyed had no more than four months of savings. As McKinsey concludes, “The COVID-19 pandemic has left no one untouched."

Governments have not been idle in response to the crisis. Swiftly, most governments provided emergency lifelines to protect citizens financially as employment levels fell. In May 2020, the International Monetary Fund estimated that global fiscal support stood at US$9 trillion in direct support of individuals, emergency corporate loans, etc. As one commentator said, “protecting an economy from a pandemic isn't cheap.” In rich nations, the IMF forecasts that the ratio of net debt to GDP will shoot up to 94 percent in 2020 compared to 77 percent before the pandemic. As measured by surveys, there was widespread public support for governments to spend to prevent countries from tumbling from a COVID-19 recession to a COVID-19 depression, but can governments continue to support millions of workers indefinitely, at the same time as tax revenues are falling, if the World Bank is right that a fundamental economic restructuring is underway long term?

Not only are our economic futures at stake as the world tries to climb out of the COVID-19 crisis, so too are our values and the responsibilities we owe to one another. The InterAction Council is well known for its Universal Declaration of Human Responsibilities and COVID-19 has tragically brought the concept of responsibility to the fore. What are the responsibilities of states to inform others if their citizens are hit by a virus, what are the responsibilities of international agencies to coordinate actions to prevent and/or respond to such outbreaks, what are the responsibilities of national governments to protect their citizens and what are the responsibilities of individual citizens to do their best not to spread the disease to others? To witness that such a simple thing as asking citizens to wear a mask could become a major political/cultural divide issue in the United States demonstrates that there is much to do in promoting the centrality of responsibility.

There is little good that can come out of the tragedy of a pandemic, but if there is even a bit of a silver lining, it is that we have come to value what is truly essential in our societies. When the pandemic hit with such force and families worried about if the food distribution system would break down, it was low paid cashiers, stock boys, and cleaners who kept the stores open. Medical staff, store employees, truckers and farmers were essential, not hedge fund managers. As we emerge from the COVID-19 black hole, this must not be forgotten.

The less well-off have suffered the brunt of COVID-19’s ravages both in deaths and in economic hardship. They must be first in line when the post-COVID-19 world looks to benefits and rewards. Like everyone else, China's economy has been greatly impacted by the pandemic, but in March 2020 President Xi Jinping reaffirmed the goal of lifting all rural residents out of poverty. Given COVID-19, there are many reasons why poverty elimination could have been postponed but it is reassuring that poverty reduction is still high on the agenda of Chinese decision makers. This example should inspire other leaders to do likewise.

We are in for a long haul economically. Obstacles to any progress will also multiply exponentially if a second wave of COVID-19 hits our societies. But in coping with the disease itself and the economic and social impacts it creates, our moral guide must be the old but still relevant injunction to “do unto others as you would have them do unto you.”

Thomas S. Axworthy is the Secretary-General of the InterAction Council.