Introduction
Richard Baldwin and Beatrice Weder di MauroFigure 5 GDP loss in 2020, deviation from baseline
-12-10-8-6-4-20
JPNDEUEUZUSAITABRAFRARUSAUSOECCANZAFOASCHIGBRARGROWKOROPCTURINDINOMEXSAUSeries1 Series2 Series3 Series4Source: Estimates by McKibbin and Fernando, S4-S7, Global Pandemic Scenarios
McKibbin and Fernando estimate the impact of different degrees of severity of a China
only and a global shock. In their most severe scenario (with very high infection rate)
their impact on 2020 growth four time higher than the Boones adverse case. In this
scenarios Japan is the country with the highest hit of almost 10% GDP loss followed by
Germany and the US with losses of about 8% each.
The policy reactions
The behaviour of the virus is one thing; governmental reaction is another. As Weder di
Mauro puts it:
- “The size and persistence of the economic damage will depend on how governments
handle this sudden close encounter with nature and with fear.”
On the dark side, it could become an economic crisis of global dimensions and a long-
lasting reversal of globalisation. On the bright side, it could be the moment when
policymakers manage a common crisis response. They might even manage to rebuild
some trust and create a cooperative spirit that helps humanity tackle other common
threats like climate change.
Wyplosz – in a chapter based on decades of experience advising governments during
crisis after crisis – suggests that government reactions to COVID-19 will be something
like a Rorschach blot test. Except this time, governemnts’ reactions will reveal the
nature of their leaders and, more widely, that of societies. They can fail miserably by