COVID19 triggered the worst recession in decades with a lightning blow to many industries and jobs. It is also exacerbating countries’ structural – economic and socio-political - vulnerabilities. The capacity to weather the pandemic and recover will depend on a set of factors, policies, and institutions that countries have in place. These factors are part of the economic, social and health make-up of each economy and thus differ from one country to another. Using publicly available data and a proprietary methodology, the COVID Economic Recovery Index (CERI) ranks 122 countries on their capacity to recover considering their overall health risk exposure and pre-existing structural strengths and weaknesses. The Index offers a data-driven tool for governments, business, and civil society to compare and benchmark countries’ capacity to bounce back stronger from this crisis. By focusing on underlying and structural factors, CERI offers a base for foresight discussions, setting out potential international, regional, and domestic contexts to stress-test policies.

 

This recent paper models the impact of epidemics on economic activity. The paper highlights the trade-off between a severe economic recession and high infection rates.

They find that:

• If medical preparedness is low, the competitive equilibrium involves a more severe recession. A higher death rate means that it is optimal for individuals to take more preventive measures against being infected and so drastically reduce their consumption and work as these are possible transmission moments.

• If a treatment is expected, the recession will be less sever but the number of infected and deaths may be higher. If a treatment is available the expected cost of infection is smaller so individuals will reduce their consumption and work by a smaller amount. However, as treatment discovery is uncertain it may be that this equilibrium results in a higher number of deaths.

• If a vaccine is a possibility, it is optimal to introduce immediate draconian mitigation measures to minimize infections. This causes a deeper, but hopefully shorter, recession and prevents many people from getting infected.

 

COVID-19 has fully exposed the vulnerabilities of global value chains (GVCs) which are characterised by high interdependencies between global lead firms and suppliers located across several continents. The biggest impact has been in medical equipment which has seen a clear supply shortage, high import tariffs and export restrictions. In fact, trade of products described as critical and in severe shortage in COVID-19 crisis totalled about $597 billion, or 1.7% of total world trade in 2019. Tariffs especially for basic protective and cleaning products remain drastically high: the average applied tariff for hand soap is 17% and some WTO Members apply tariffs as high as 65%.

The consequently of these supply shortages is that companies worldwide are looking to new technologies, including 3D printing and artificial intelligence, to fill some of these supply shortages. In addition, momentum in the US, France and beyond is growing for the need to reduce medical supply chain dependence on global supply chains and call for the need of “sovereign” and “independent” supplies. 

Is medical supply a first mover in this trend of even greater automation and re-shoring? Fujita, Moscarini and Postel-Vinay argue that COVID-19 per se should not represent a permanent in other sectors as a major and persistent reallocation of employment following such a deep but temporary and unusual shock are likely to result in sudden destruction of firm-specific human capital and customer base. This firm specific human capital has slowly been accumulated over many years of investment, experimentation, and selection which would cause more economic damage to firms if abruptly lost.