Social distancing and shutdown policies related to the coronavirus pandemic have important effects in slowing the spread of the virus. Ensuring that our health system maintains sufficient capacity to respond effectively, those policies might reduce the overall health and economic toll unless a vaccine or effective treatments are subsequently developed. However, those policies also impose substantial costs on the economic livelihoods of countless people and businesses around the world.
Recessions wreak havoc and the damage is often long-lived. Businesses shut down, investment spending is cut, and people out of work can lose skills and motivation as the months stretch on. But the recession brought on by the COVID-19 pandemic is no ordinary recession. Compared to previous global crises, the contraction was sudden and deep - using quarterly data, global output declined about three times as much as in the global financial crisis, in half the time.
We expect world output in the medium-term to be about 3 percent lower in 2024 than pre-pandemic projections.
Systemic financial stress - associated with long-lasting economic damage - has been largely avoided so far, owing to the unprecedented policy actions taken. However, the path to recovery remains challenging, especially for countries with limited fiscal space, and is made harder by the differential impact of the pandemic.