By Gita Gopinath
The Great Lockdown is expected to play out in three phases, first as countries enter the lockdown, then as they exit, and finally as they escape the lockdown when there is a medical solution to the pandemic.
Many countries are now in the second phase, as they reopen, with early signs of recovery, but risks of second waves of infections and re-imposition of lockdowns. Surveying the economic landscape, the sheer scale and severity of the Global Lockdown are striking. Most tragically, this pandemic has already claimed hundreds of thousands of lives worldwide. The resulting economic crisis is unlike anything the world has seen before.
This is a truly global crisis. Past crises, as deep and severe as they were, remained confined to smaller segments of the world, from Latin America during the 1980s to Asia in the 1990s. Even the global financial crisis 10 years ago had more modest effects on global output.
For the first time since the Great Depression, both advanced and emerging market economies will be in recession in 2020. The forthcoming June World Economic Outlook Update is likely to show negative growth rates even worse than previously estimated. This crisis will have devastating consequences for the world’s poor.
Aside from its unprecedented scale, the Global Lockdown is playing out in ways that are very different from past crises.
These unusual characteristics are emerging all over the world, irrespective of the size, geographic region, or production structure of economies.
First, this crisis has dealt a uniquely large blow to the services sector. In typical crises, the brunt is borne by manufacturing, reflecting a decline in investment, while the effect on services is generally muted as consumption demand is less affected.
This time is different. In the peak months of the lockdown the contraction in services has been even larger than in manufacturing, and it is seen in advanced and emerging market economies alike. There are exceptions—like Sweden and Taiwan Province of China, which adopted a different approach to the health crisis, with limited government containment measures and a consequently proportionately smaller hit to services vis-à-vis manufacturing.
