Revisiting Covid Scarring in Emerging Markets

Chris Jackson and Jason Lu

No 2023/162, IMF Working Papers from International Monetary Fund

Abstract: 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.

Keywords: COVID-19; scarring; medium-term output; Emerging Markets; output loss; GDP growth data; revisiting Covid; POST-Covid GDP loss; scarring estimate; Total factor productivity; Employment; Emerging and frontier financial markets; Wages; Global (search for similar items in EconPapers)
Pages: 26
Date: 2023-08-04
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Citations: View citations in EconPapers (2)

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