B0866B8FNJ

Economics in the Time of COVID-19

Figure 4 Quarter-on-quarter growth, world imports volume, 1965 to 2019 Q3

1974Q4 -1975Q4

1982Q3 -1983Q1 2001Q3 -2002Q1

-20% 2008Q4 -2009Q4

-15%

-10%

-5%

0%

5%

10%

15%

20%

Q3-1965Q4-1966Q1-1968Q2-1969Q3-1970Q4-1971Q1-1973Q2-1974Q3-1975Q4-1976Q1-1978Q2-1979Q3-1980Q4-1981Q1-1983Q2-1984Q3-1985Q4-1986Q1-1988Q2-1989Q3-1990Q4-1991Q1-1993Q2-1994Q3-1995Q4-1996Q1-1998Q2-1999Q3-2000Q4-2001Q1-2003Q2-2004Q3-2005Q4-2006Q1-2008Q2-2009Q3-2010Q4-2011Q1-2013Q2-2014Q3-2015Q4-2016Q1-2018Q2-2019

Source: Baldwin and Tomiura, elaboration on WTO online data (www.WTO.org).

Boone estimates that a base scenario, in which the outbreak is contained to China and
a few other countries, could imply a world growth slowdown of about 0.5% in 2020. In
the downside scenario, where the spread is spread widely over the northern hemisphere
the 2020 world GDP growth would be reduced by 1.5%. Most of the impact is attributed
to lower demand, but in this scenario the negative contribution of uncertainty is also
significant.

Mann discusses the possibility that this crisis is likely to be U-shaped rather than
V-shaped, as has been the case for similar epidemics and other recent supply shocks.
Her point is that the linkages discuss will affect different nations differently. It may be
a V, i.e. short and sharp with full recovery to the old growth path for some sectors and
nations, but much more lingering for others. This suggest that in aggregate it could, at
least for manufacturing, look more like a U-shape in the global data.

For services, the shock will be hard to recover from so it may look more like an ‘L’.
Growth drops for a while, and while it will resume eventually, there will be no catch
up. People who skip a few restaurant meals, cinema outings, and holidays in the sun
are unlikely to double-up on dining, movie-going and holidaymaking to catch up. The
shock to tourism, transportation services, and domestic activities generally will not be
recovered. Mann predicts that domestic services also will bear the brunt of the virus
outbreak.