Low-Income Nations Likely to Remain Deeply Damaged Five Years After Pandemic, World Bank Says
June 02 2020 - 10:29AM
Dow Jones News
By Josh Zumbrun
The world's low-income and emerging market economies will likely
remain deeply damaged even five years after the coronavirus
pandemic and associated lockdowns began, according to a new study
from the World Bank.
The virus has already plunged the world into a severe recession,
the World Bank said, and its research casts doubt on scenarios in
which emerging markets bounce back quickly after the health crisis
has eased.
"The exceptional severity of the pandemic and economic collapse"
not only raises the risk of "a permanent loss of output levels but
a permanent slowdown in potential output growth," the World Bank
said in a study released on Tuesday.
"The pandemic could alter the very structures upon which the
growth of recent decades was built, since it could cause prolonged
damage to global supply chains, global trade and financial flows,
and global collaboration," the study said.
The World Bank, collectively owned by 189 countries and based in
Washington, lends to the world's poorer countries to help their
economies develop. Since March, much of the bank's lending has
focused on providing up to $160 billion of coronavirus relief
around the world. But even with this support, World Bank
researchers caution that the pandemic could leave lasting
scars.
"The bottom line," Ceyla Pazarbasioglu, a World Bank vice
president, said in an interview, "is that most emerging market and
developing economies started this crisis in a weak position, with a
lot of vulnerabilities, and it's the biggest shock since World War
II."
Compared with the global financial crisis a decade ago, emerging
market economies entered the coronavirus pandemic with more debt,
aging populations, weaker demand for commodities and trade tensions
that had weakened the international flow of goods and services even
before the pandemic started.
In the average emerging market, if a recession leads to a
financial crisis, potential economic growth would be 8% lower in
five years. For energy exporters, the toll could be more severe --
a recession and oil-price plunge could leave economic potential 11%
lower after five years.
Few emerging-market economies have the capacity to borrow
heavily to fund the kinds of stimulus programs that are being
carried out by rich economies like the U.S. and European Union.
And despite the fiscal and monetary policies of wealthier
countries, it's unclear how successful rich economies will be at
resuscitating their economies after the pandemic
"What's the second phase of this crisis and how much stimulus is
needed, and is there a strategy to deal with firms not making it
through the crisis?" said Ms. Pazarbasioglu. "In emerging market
countries it's an even bigger issue."
Write to Josh Zumbrun at Josh.Zumbrun@wsj.com
(END) Dow Jones Newswires
June 02, 2020 10:14 ET (14:14 GMT)
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