Economic impact of COVID-19 around the world

Since the COVID-19 pandemic began in March 2020, the global economy has been affected in many ways. The poorest countries have suffered the most, but despite their greater resources, the richer countries have faced challenges of their own. This article looks at the impact of COVID-19 in different areas of the world.

First, I put 171 nations into three groups according to per capita income: low, middle, and high income. Second, I looked at the health statistics to show how hard hit these nations were by the virus. Then, by comparing the economic forecasts that the International Monetary Fund (IMF) made in October 2019 (pre-pandemic) for 2020 with their actual values, I obtained estimates of the impact of the pandemic on growth and key economic policy variables.

The low and high income groups each make up 25% of the world’s countries, and the middle income group accounts for 50%. Average per capita income in 2019 was more than five times higher in the middle income group than in the low income group. In high-income countries, it was nearly 20 times higher.

Results and health policies

The first table shows that COVID-19 had a significant impact on all three groups. Average excess mortality, which indicates how much higher the number of deaths was relative to previous years, was more than 34% in low-income countries, almost 14% in middle-income countries, and around 10% in low-income countries. high income countries. And while the poorest countries were hit hardest by the deaths, their COVID-19 testing was much more limited due to their smaller resources.

Since the start of the pandemic, high-income countries have done more than one test per person, while low-income countries have only done one test for every 27 people (or 0.037 per person). Given the significant differences in testing, it is not surprising that reported cases were much higher in wealthier countries. Finally, note that there were significant differences in vaccination progress. In June 2021, almost 20% of the population in the richest countries was fully vaccinated, compared to about 2% in the poorest countries.

I have around 40, 80, and 40 countries in the low-, middle-, and high-income country groups for most statistics. However, it is worth noting that only two countries had data available on excess mortality in the low-income group.

Impact on GDP growth

COVID-19 related lockdowns were very common during 2020-21, having a direct impact on economic activity. The following figure shows the impact on GDP. To isolate the impact of COVID-19 from past trends, I plotted the difference between actual GDP growth in 2020 and the IMF forecast made in October 2019.

Impact of COVID-19 on GDP growth worldwide

SOURCES: IMF World Economic Outlook reports (April 2021 and October 2019), Penn World Table (version 10.0), and author’s calculations.

NOTE: The impact of COVID-19 is the difference between the real growth rate of gross domestic product in 2020 and the IMF forecast made in October 2019.

Economic politics

Differences in GDP performance are not only related to lockdowns but also to economic policy responses. The second table contains information on six policy variables.

In particular, the first three rows present the fiscal response to the pandemic calculated as the difference between the actual value in 2020 and the IMF forecast made before the pandemic in October 2019 relative to GDP. Income relative to GDP declined slightly in all regions, but especially in middle-income countries, reaching more than 1 percentage point of GDP.

However, expenditures relative to GDP increased in high- and middle-income countries, while they remained stable in low-income countries. These expenditures increased by almost 7 percentage points of GDP in high-income countries. The larger fiscal deficit relative to GDP implied a larger increase in net public borrowing, which reached 7 percentage points of GDP in high-middle-income countries.

SOURCES: IMF World Economic Outlook reports (April 2021 and October 2019), Penn World Table (version 10.0), Haver Analytics, and author calculations.

For example, the growth rate of M1 was more than 10 percentage points higher than in the previous two years in upper-middle-income countries. Without a change in the demand for money, such an acceleration in the quantity of money would have implied rising inflation.

However, the last row of the table shows that inflation was stable in 2020. In fact, for middle- and high-income countries, inflation in 2020 was lower than the IMF forecast made in October 2019.

conclusions

COVID-19 impacted health outcomes in all regions of the world. Wealthier countries responded with more testing and faster vaccination rates. Comparing the actual results with pre-pandemic forecasts, I found a significant impact of the pandemic on GDP growth, which is most prominent in middle-income countries.

I surmise that the impact on GDP growth was less significant in poorer countries due to less restrictive lockdowns and in richer countries due to more aggressive economic policies.

1. Final note