Addressing the Pandemic's Medium-Term Fallout in Australia and New Zealand

By Geoffrey J Bannister, Harald Finger, Yosuke Kido, Siddharth Kothari, Elena Loukoianova

December 11, 2020

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Geoffrey J Bannister, Harald Finger, Yosuke Kido, Siddharth Kothari, and Elena Loukoianova. Addressing the Pandemic's Medium-Term Fallout in Australia and New Zealand, (USA: International Monetary Fund, 2020) accessed November 21, 2024

Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

While the world is focused on addressing the near-term ramifications of the COVID-19 shock, we turn attention to another important aspect of the pandemic: its fallout on medium-term potential output through scarring. Taking Australia and New Zealand as examples, we show that the pandemic will likely have a large and persistent impact on potential output, broadly in line with the experience of advanced economies from past recessions. The impact is driven by employment, capital stock, and productivity losses in the wake of an unprecedented sectoral reallocation, hightened uncertainty, and reduced migration. Maintaining fiscal and monetary policy support until the recovery is firmly entrenched and putting in place a strong structural policy agenda to counter the pandemic’s adverse effects on medium-term potential output will be important to support standards of living and strengthen economic resilience in case of renewed shocks.

Subject: Economic sectors, Financial crises

Keywords: Advanced economies, Australia, COVID-19, New Zealand, Potential output, Scarring

Publication Details

Pages:

40
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2020/272
Stock No:

WPIEA2020272
ISBN:

9781513563282
ISSN:

1018-5941

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