Many governments have effectively frozen social and economic activity in all or parts of their countries to contain the outbreak, shuttering nonessential businesses and ordering residents to stay at home for weeks or months.
Billions of people worldwide remain under some type of lockdown.
The Covid-19 pandemic is inflicting high and rising human costs worldwide. Protecting lives and allowing healthcare systems to cope have required isolation, lockdowns, and widespread closures to slow the spread of the virus.
The health crisis is therefore having a severe impact on economic activity.
Given the extraordinary nature of the pandemic-induced crisis, fiscal and monetary policymakers are working without a playbook.
Many, however, are moving forward with unprecedented bailouts that could collectively top $10tn.
As a result of the pandemic, the International Monetary Fund (IMF) recently projected the global economy to contract sharply by –3% in 2020, much worse than during the 2008-09 financial crisis.
In a baseline scenario, which assumes that the pandemic fades in the second half of 2020 and containment efforts can be gradually unwound, the global economy is projected to grow by 5.8% in 2021 as economic activity normalises, which IMF stresses can only be facilitated by policy support.
The Organisation for Economic Co-operation and Development (OECD) said its indicators produced the strongest warning on record that most major economies had entered a “sharp slowdown.”
The World Trade Organisation (WTO), for its part, forecast that nearly all regions of the world would suffer double-digit declines in trade this year, with North American and Asian exporters hit hardest.
According to the Council on Foreign Relations, the hope is that economies can power down without causing extreme disruptions, such as widespread business failures or joblessness, and then quickly get back up to speed after the pandemic abates.
“Effective policies are essential to forestall worse outcomes,” IMF noted recently. Necessary measures to reduce contagion and protect lives will take a short-term toll on economic activity but should also be seen as an important investment in long-term human and economic health.
IMF says the immediate priority must be to contain the fallout from the Covid-19 outbreak, especially by increasing healthcare expenditures to strengthen the capacity and resources of the healthcare sector while adopting measures that reduce contagion.
Economic policies will also need to cushion the impact of the decline in activity on people, firms, and the financial system; reduce persistent scarring effects from the unavoidable severe slowdown; and ensure that the economic recovery can begin quickly once the pandemic fades.
Because the economic fallout reflects particularly acute shocks in specific sectors, policymakers will need to implement substantial targeted fiscal, monetary, and financial market measures to support affected households and businesses.
Such actions, IMF says will help maintain economic relationships throughout the shutdown and are essential to enable activity to gradually normalise once the pandemic abates and containment measures lifted.