The Financial Express

COVID-19 may cost global economy $82t in five years

| Updated: June 09, 2020 12:02:51

-Reuters file photo -Reuters file photo

The global economy could take a hit of some $82 trillion in a worst case scenario from the coronavirus over the next five years, according to recent findings by University of Cambridge.

The Centre for Risk Studies, which examines systemic risks, at the University of Cambridge Judge Business School revealed the information in an article published by the World Economic Forum (WEF) recently.

“The potential toll could range between an optimistic loss of $3.3 trillion in case of rapid recovery and $82 trillion in the event of an economic depression,” according to the article.

These cost projections are based on 2019 gross domestic product volumes which stood at $69.2 trillion for the world's 19 leading economies. The contrast, in comparison, is visibly massive.

While lost value of $82 trillion is the worst case scenario, the centre's consensus projection was a loss of some $26.8 trillion, or 5.3 per cent, of global GDP in the coming five years.

To put a figure on the potential impact to some of the leading global economies, the following five-year loss projections added more contexts (All per cents represent five-year GDP estimates):

• US: Best case: $550 billion (0.4 per cent of GDP). Worst case: $19.9 trillion (13.6 per cent)

• UK: Best case: $96 billion (0.46 per cent). Worst case: $2.5 trillion (16.8 per cent)

• China: Best case: $1 trillion (0.9 per cent). Worst case: $19 trillion (16.5 per cent)

The centre was keen to stress that its metrics are not forecasts for what will happen, rather projections on what might occur. They are also not meant to reflect an economic contraction, but rather how much potential GDP is at risk.

"The new calculations on GDP@Risk from the pandemic are not forecasts, but rather are projections based on various plausible scenarios that could unfold in the next five years related to the economic impact of COVID-19," Andrew Coburn, the centre's chief scientist said.

Strikingly, financial markets do not seem to be weighing in a doomsday scenario. The S&P 500 continues to advance, making gains of over 30 per cent compared to March.

In other related impacts, future growth and return on assets could continue to be depressed up to 40 years after the passing of the pandemic, according to Keith Wade, chief economist at Schroders UK.

By citing studies on the long-term economic impact of past pandemics, Wade shed some light on outbreaks spanning back to the 14th century Black Death up to the H1N1 explosion of 2009.

"The world economy is still in the midst of the 'full stop' described by Daniel Defoe some 300 years ago," Wade said.

"The virus is likely to reinforce the trends that were driving activity before the outbreak struck, by challenging the growth path, creating greater pressure on government finances and increasing inequality as technology becomes ever more pervasive."

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