Revisiting Covid Scarring in Emerging Markets

August 4, 2023

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Format: Chicago

Chris Jackson, and Jason Lu. Revisiting Covid Scarring in Emerging Markets, (USA: International Monetary Fund, 2023) 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

The Covid-19 pandemic is expected to result in large and persistent losses in economic output, known as scarring. These losses were expected to be more severe in Emerging Markets than in Advanced Economies. This paper examines the impact of Covid on output in Emerging Markets so far and its implications for projections of economic scarring. While Covid has had a material impact on activity, the recovery has been stronger than initially expected. We find that these positive data surprises have over time been treated increasingly as transitory rather than a signal for the state of scarring. Second, we show that the composition of output losses has been qualitatively different from past last shocks. History suggests that the main driver of scarring is weak productivity. Covid losses, however, have so far been more skewed to employment with a smaller than usual impact on productivity. We argue that these findings suggest that scarring, while substantial, may be ultimately less severe than initially feared, at least over the medium term. We provide alternative sets of medium-term projections to indicate potential magnitudes.

Subject: COVID-19, Emerging and frontier financial markets, Employment, Financial markets, Health, Labor, Production, Total factor productivity, Wages

Keywords: COVID-19, Emerging and frontier financial markets, Emerging Markets, Employment, GDP growth data, Global, Medium-term output, Output loss, POST-Covid GDP loss, Revisiting Covid, Scarring, Scarring estimate, Total factor productivity, Wages

Publication Details

Pages:

26
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2023/162
Stock No:

WPIEA2023162
ISBN:

9798400252136
ISSN:

1018-5941

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