THE World Bank (WB) said the less immediately obvious consequences of the pandemic include the erosion of human capital as millions lose their jobs as well as the contraction of supply chains as troubled firms withdraw from participating in the global economy.
In a chapter of its Global Economic Prospects report called Lasting Scars of the COVID-19 Pandemic, the World Bank said emerging market and developing economies (EMDEs) will likely experience “deep recessions.”
“Beyond its short-term impact, deep recessions triggered by the pandemic are likely to leave lasting scars through multiple channels, including lower investment; erosion of the human capital of the unemployed; and a retreat from global trade and supply linkages,” according to part of the report published Wednesday.
The World Bank said EMDEs falling into recession this year while also experiencing financial crises will likely experience “larger long-term potential output losses” than recessions that are not experiencing financial crises.
Citing previous cases, the World Bank said, “Five years after a recession-cum-crisis, potential output in EMDEs remained almost 8% below baseline — more than the 6% potential output loss following the average recession,” it said.
The full report is due for release on June 8, during which the World Bank will also update its forecast for the global economy.
The World Bank also expects severe impacts on energy exporters because of plunging oil prices.
“The likely long-term consequences of the pandemic highlight the need to forcefully undertake comprehensive reform programs to improve the fundamental drivers of economic growth,” it said.
It said EMDEs that have wide current account or budget deficits, or heavy debt burdens are “particularly vulnerable” to a sharp rise in borrowing costs or may have limited access to financing.
This kind of “financial vulnerability” could constrain the economy’s capacity to deliver effective monetary and fiscal stimulus.
World Bank Lead Economist and Program Leader for Brunei, Malaysia, the Philippines and Thailand Souleymane Coulibaly last month said they are currently revising the economic forecast for the Philippines for 2020.
“It will not be the six percent growth. Maybe it will be zero this year, or even minus one or two this year. But next year, we will see resumption in the economy,” Mr. Coulibaly said during the BUSINESSWORLD INSIGHTS online forum.
In its Regional Economic Update report published in April, the World Bank downgraded its earlier 6.1% growth forecast for the Philippine economy and gave a growth forecast range of 3% to -0.5%, depending on the extent of the impact of the COVID-19 outbreak and the enhanced community quarantine (ECQ) in Luzon. — B.M. Laforga