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International Monetary Fund. European Dept.
The economy showed resilience through the pandemic, but the war in Ukraine has clouded the outlook, heightened uncertainty, and increased downside risks. With policy support, growth rebounded in 2021 despite the lingering COVID-19 crisis and protracted political uncertainty that hampered investment. Inflation accelerated significantly, pushed by global factors and strong domestic consumption. GDP growth is projected to slow below 3 percent and average inflation to exceed 12 percent in 2022. In this context, policies must navigate difficult trade-offs as they need to support activity, meet needs from the war, and contain inflation, while raising living standards, reducing inequalities, and supporting the green transition.
Mariya Brussevich, Shihui Liu, and Mr. Chris Papageorgiou
The paper extends the work of Deaton (2021) by exploring the period of post-crisis recovery in 2021-2024. The paper documents per-capita income divergence during the period of post-shock recovery, with countries at the bottom of the income distribution falling significantly behind. Findings suggest that higher COVID-19 vaccination rates and targeted virus containment measures are associated with faster recovery in per-capita incomes in the medium term. Evidence on the effectiveness of economic support policies for reducing cross-country income inequality, including fiscal and monetary policies, is mixed especially in the case of developing countries.
Mr. Shekhar Aiyar, Mr. Davide Malacrino, Mr. Adil Mohommad, and Mr. Andrea F Presbitero
While standard demand factors perform well in predicting historical trade patterns, they fail conspicuously in 2020, when pandemic-specific factors played a key role above and beyond demand. Prediction errors from a multilateral import demand model in 2020 vary systematically with the health preparedness of trade partners, suggesting that pandemic-response policies have international spillovers. Bilateral product-level data covering about 95 percent of global goods trade reveals sizable negative international spillovers to trade from supply disruptions due to domestic lockdowns. These international spillovers accounted for up to 60 percent of the observed decline in trade in the early phase of the pandemic, but their effect was shortlived, concentrated among goods produced in key global value chains, and mitigated by the availability of remote working and the size of the fiscal response to the pandemic.
Mariya Brussevich, Mr. Chris Papageorgiou, and Pauline Wibaux
This paper uses granular customs data from France to investigate propagation of the COVID-19 shock along the supply chains in 2020. It quantifies the effect of the COVID-19 shock on trade adjustment and identifies mitigating and amplifying factors contributing to French firms’ heterogeneous adjustment paths. Early in the pandemic, firms mainly responded to global lockdowns and spread of the virus by reducing trade volumes (intensive margin) as opposed to exiting from import and export markets (ex-tensive margin). However, adjustment along the extensive margin played a more important role in trade with developing countries. It is shown that the impact of lockdowns was stronger for final consumer goods and the trade recovery was predominantly demand-driven. More automated, inventory-intensive, older, and medium-sized firms were more insulated from the shock, whereas firms’ reliance on air transportation for shipping goods amplified the shock. Trade bans and promotion measures implemented by governments in response to the pandemic had little impact on aggregate trade flows.
Andras Komaromi, Mr. Diego A. Cerdeiro, and Yang Liu
Rising prices and reports of empty shelves in major economies have drawn attention to the functioning of supply chains that normally operate smoothly in the background. Among the issues, the long delays that port congestion may have caused in delivering goods to consumers and firms have been gathering increasing attention. We shed light on these issues leveraging a unique data set on maritime transport. Two main features emerge. First, at the world level, we find that shipping times jumped upwards as soon as the COVID crisis hit, and after a marked acceleration from end-2020, delays surpassed 1.5 days on average by December 2021 – or roughly a 25 percent increase in global travel times. The estimated additional days in transit for the average shipment in December 2021 can be compared to an ad-valorem tariff of 0.9 to 3.1 percent. The midpoint of this range is approximately equal, in absolute value, to the global applied tariff reduction achieved over the 14-year period from 2003 to 2017. Second, not all congestion appears related to increased demand. Many ports, especially since mid-2021, exhibit longer wait times despite handling less cargo than pre-pandemic. Infrastructure upgrading is therefore likely a necessary, but not sufficient condition for building resilience during a crisis where other factors (such as labor shortages) may also become binding.
International Monetary Fund. Research Dept.
This issue of the IMF Research Perspective looks at the inter-connectedness of the world economic system and how diverse shocks can affect global supply chains. The articles in this issue track the way COVID-19 triggered disruptions in the supply chain and explains why trade networks are so difficult to disentangle. However, the pandemic is not the only event affecting global supply chains; cross-border spillovers of technology wars and natural disasters are other factors to consider. The overarching message from these articles is clear: there is a need for international cooperation to deal with the consequences of these shocks—whether it is ending the COVID-19 pandemic or mitigating climate change.
International Monetary Fund. Middle East and Central Asia Dept.
The concomitant Covid-19 pandemic and oil price shock in 2020 have taken a heavy toll on the Algerian economy and the population. The authorities’ response helped mitigate the social and economic impact of the crisis. Nevertheless, the crisis exacerbated the Algerian economy’s vulnerabilities, making even more urgent the need for a new, more inclusive and sustainable, growth model. A recovery is underway in 2021, but the outlook remains challenging. While the recent rebound in hydrocarbon prices should buoy the recovery and ease immediate financing constraints, addressing long-standing structural challenges will help to realize Algeria’s vast growth potential for the benefit of its population.