"Repeated COVID-19 Spread and Lockdowns Could Erase $21.8 Trillion from Global GDP This Year"

Brookings Institution in the US Publishes Scenario Analysis Report by Visiting Researcher Professor Warwick McKibbin
Worst Economic Outlook if COVID-19 Surges Twice This Year and Next with Full Lockdowns
Limited Lockdowns Lead to Sharp Increase in Cases
US Cases Surge, Could Reach 8 Million Next Year Without Lockdowns

[Image source=Reuters Yonhap News]

[Asia Economy Reporter Jeong Hyunjin] If the novel coronavirus disease (COVID-19) pandemic spreads twice each in this year and next year and all economic activities are completely shut down, it is projected that the global gross domestic product (GDP) could decrease by as much as $21.8 trillion (approximately 26,223 trillion KRW) this year.

The International Monetary Fund (IMF) currently estimates a GDP decline of $12.5 trillion for this year and next year combined, considering the current COVID-19 infection trends. However, in the worst-case scenario, the economic damage could be much larger this year alone. This suggests that the ongoing pandemic, with no vaccine or treatment developed yet, could deliver a severe shock to the economy.

This projection came from a report authored by Warwick McKibbin, a professor at the Australian National University, and others, published recently on the Brookings Institution's website on the 28th (local time). Professor McKibbin, a visiting researcher at the Brookings Institution, analyzed the economic impact of COVID-19 on the macroeconomy through six scenarios, assuming the worst case of four waves of outbreaks and lockdowns through next year.

The scenarios were prepared by dividing the number of COVID-19 outbreaks and lockdown implementations in this year and next year, as well as the possibility of resurgence after 2021, into six cases. Across all scenarios, the global real GDP is projected to decline by between $14.7337 trillion and $21.782 trillion due to the impact of COVID-19 this year.

The scenario causing the worst economic damage this year is the fourth one (see table), where there are two outbreaks each in this year and next year, and all result in lockdowns. Assuming no COVID-19 resurgence after 2021, the real GDP is expected to decrease by $21.782 trillion this year alone. Considering the World Bank's estimate of the global GDP at $85.9308 trillion at the end of 2018, this corresponds to 25.3%.

However, if we consider the fifth scenario as a realistic case?assuming two outbreaks this year, one next year, one after 2021, and lockdowns only once this year as previously implemented?the GDP decline this year is projected at $17.2666 trillion. The cumulative GDP loss from this year through 2025 is estimated at $35.36 trillion under the fifth scenario, which is about $10 trillion more than the $25.8226 trillion projected under the fourth scenario. In the short term, lockdown measures cause greater damage, while in the long term, the fear of COVID-19 resurgence after 2021 negatively affects the economy.

By major countries, based on the worst-case fourth scenario, the U.S. GDP this year is expected to decrease by 17.68% compared to pre-COVID-19 forecasts. China is projected to decline by 9.48%, South Korea by 8.03%, Germany by 15.28%, and Brazil by 22.35%. Even applying the more realistic fifth scenario, the U.S., Japan, Germany, and Brazil are all expected to see declines in the double digits, while China and South Korea are projected to decrease by 7.86% and 6.27%, respectively.

Employment rates under the fourth scenario are expected to decrease by 20.93% in the U.S., 5.95% in China, and 16.52% in Germany compared to pre-COVID-19 estimates. South Korea is expected to see a 5.65% decrease.

Professor McKibbin also presented projections of infection and death counts by scenario in the report. Economically, strong lockdown measures caused greater damage, but the infection scale showed the opposite trend. Under the fourth scenario with strong lockdowns, the U.S. is expected to have 2.4 million confirmed cases this year and 1.2 million next year. In contrast, the fifth scenario with only one lockdown each in this year and next year projects a sharp increase to 5.6 million cases this year and 8 million next year.

Currently, the number of confirmed cases in the U.S. has already exceeded 2.54 million. Given the Trump administration's strong intention to maintain economic activities, it is unlikely that lockdown measures will be reimposed. Therefore, the possibility of a surge in confirmed cases as projected in the fifth scenario cannot be ruled out.

Professor McKibbin, who authored the report, said, "The question of whether it is right to impose lockdowns in response to COVID-19 resurgence, or whether people should maintain social distancing for a long time, remains unanswered." He added, "The core issue now is how to open the economy amid tremendous economic shocks and how the economy will adapt to the post-COVID-19 world." He emphasized, "Institutional design at the global level is key to success," and stressed, "While policy design and implementation must be done at the national level, greater cooperation among countries is needed in predictable areas."

This content was produced with the assistance of AI translation services.