T.IT’S ECONOMICAL The number of Covid 19 pandemics cannot be calculated. But let’s try anyway. A useful starting point is the semester Global economic outlook Report released this week by the World Bank. The global economy is calculated to have likely contracted 4.3% in 2020, a setback only achieved by the Depression and the two world wars. But that dramatic number still underestimates the cost. It measures the decline in the global economy from before the pandemic, rather than from where the virus would not have spread.
To calculate this larger decline, economists need an estimate of how global GDP could have developed in the absence of covid-19. A simple basis is the World Bank projection published around this time last year, when fortunately it was not yet aware of the lurking viral threat. At that time it was expected globally GDP expand 2.5% to $ 86 billion in 2020. Compared to that number, the deficit is global GDP last year it was probably closer to 6.6%. This equates to approximately $ 5.6 billion (at 2010 market exchange rates and prices, which the bank uses to simplify analysis).
The global economy should grow unusually rapidly in 2021, according to bank projects supported by the introduction of vaccines. But even if that expectation is met and no further disasters occur, production levels in 2021 will remain 5.3% below the bank’s pre-pandemic forecasts: another shortfall of nearly $ 4.7 billion (see chart).
Taken together, those two numbers and the cost of covid-19 this year and last year will be about $ 10.3 trillion: goods and services that the world could have produced if it hadn’t been affected. That’s a huge number to say the least. Only America and China have a yearbook GDP greater than $ 10trn. And there are 153 economies producing less in 2019 than those between them. Converted to today’s money, $ 10.3 trillion is enough to buy the ten largest publicly traded companies in the world, including Amazon, Apple and Saudi Aramco. It is also enough to buy the entire property in New York City nine times.
Over $ 2 trillion of the cost is borne by the euro area. America will carry roughly $ 1.7 trillion. Among the developing world, India is projected to suffer the biggest loss in US dollars: around $ 950 billion (although the bank’s forecast for India’s growth in 2021 seems overly pessimistic). Even though China’s economy is much larger than India’s, it will suffer less GDP Shortfall of around $ 680 billion.
However, even these colossal numbers underestimate the cost. After all, the economic damage will not be limited to this year or the last. The World Bank expects global GDP in 2022 will remain 4.4% below its pre-pandemic predictions. She fears permanent damage to investments, human capital and thus to the growth potential of the global economy. It is also worrying that the debt that governments and corporations have spent to weather the pandemic could hurt future growth.
There’s another reason these numbers underestimate the economic tab. If the pandemic had never happened, world GDP not only would it have been higher, it would have been different. Instead of masks, tests, vaccines, zoo calls, and package deliveries, the global economy would have produced other items. Because the pandemic is so damaging to health and society, it is worth investing enormous resources in combating this pandemic – these efforts have tremendous economic value. But if the virus had never spread, the same effort would have been unnecessary, making it an expense the world could have been spared. ■
This article appeared in the Finance & Economics section of the print edition under the heading “Covid-10trn”.