Covid-19 and the long-term effect on the global economy

Publicação: 9 de October de 2021

Developing countries can bear most of the costs of the coronavirus crisis

Developing countries having trouble recovering and will face problems in 2022. Division between rich and poor nations requires change

In mid-September, the United Nations Conference on Trade and Development (Unctad) released the report Trade and Development Report 2021: From recovery to resilience: the development dimension, which sounded cautiously optimistic when saying that the global economy is ready for a strong recovery in 2021. Data indicate that there will be a recovery of 5.3% this year, slowing down to 3.6% in 2022. The report also highlights divergent economic recoveries between rich and poor nations and casts new urgency behind warnings that richer nations aren’t doing enough to help poorer countries lag behind as the world recovers from Covid-19 disruptions.

According to the document, deficient public health systems and high levels of informality increased the impact of the pandemic in terms of health and economic outcomes, which was reflected in a sharp increase in poverty rates. Also according to the report, the pandemic’s damage has surpassed that of the Great Recession of 2007/2009 in most of the global economy, but it has been particularly drained in the developing world. Developing countries (except China) will by 2025, be up to US $8 trillion poorer as a result of the coronavirus crisis.

A Unctad afirma que restrições fiscais, falta de autonomia monetária e de acesso a vacinas estão segurando a recuperação dos países em desenvolvimento e aumentando o abismo que existe entre eles e as economias avançadas, ameaçando iniciar outra década perdida. According to the organization, economic policy makers in advanced countries have not yet woken up to the magnitude of the shock caused by the pandemic and to its persistence in developing countries. The institution also warns that the increase in food prices could pose a serious threat to vulnerable populations in the countries of the South, which are already financially weakened by the health crisis.

In advanced economies, the rentier class has experienced an explosion of wealth, while the low-income ones struggle. Developing countries are having a harder time recovering and will face problems next year. Brazil is expected to have the lowest growth among major economies in 2022, which is expected to drop from 4.8% in 2021 to 1.8% in 2022. On the other hand, India, which suffered a contraction of 7% in 2020, should grow 7.2% in 2021. An excerpt from the document that deals specifically with Brazil points out that, despite the heavy human cost of the pandemic, the Brazilian economy contracted only 4.1% in 2020 due to the fiscal and monetary policies adopted. In 2021, the recovery in commodity prices and a gradual reduction in the fiscal stimulus should help the Gross Domestic Product (GDP) to grow by 4.9%.

The report shows that the impact on less developed countries is stronger and will be longer lasting than on rich countries. The losses of developing countries in relation to what they could produce had they not been so hard hit by the coronavirus are estimated by Unctad at US$ 12 trillion between 2020 and 2025. The institution’s projections for 2022 indicate growth of 6.7% (India), 5.7% (India), 4.9% (Indonesia), 3.6% (Turkey), 3.4% (France), 3.3% (Saudi Arabia), 3.2% (Germany), 3% (Italy), 3% (USA), 2,9% (Argentina), 2.9% (Canada), 2.8% (Mexico ), 2.8% (Korea), 2.8% (Australia), 2.3% (Russia), 2,1% (Japan), 2.1% (United Kingdom) and 1.8% (Brazil). The US is expected to grow 5.7% in 2021, followed by a 3% GDP growth in 2022.

Temporary price increases caused by supply problems and some demand-side pressures could become excuses to reverse the policies needed to sustain the recovery in advanced economies. According to the secretary general of the Unctad, Rebeca Grynspan, the global recovery from the pandemic must go beyond emergency spending and investments in infrastructure to embrace a reinvigorated multilateral model for trade and development. According to her, only a coordinated rethinking of priorities maintains the hope of addressing inequality and the climate crises that defined this era.

For the institution, a less unequal recovery will require multilateral cooperation with additional policies and transformations that go far beyond the rescue packages provoked by the pandemic. Regarding the lessons brought by the current crisis, Unctad says that developing countries need support to expand their fiscal space, that recovery depends on public investment and that public banks and stronger regulatory supervision can provide a healthier investment environment.