Coronavirus: the economic impact A health pandemic or a pandemic for the economy?

By the Policy, Research and Statistics Department, UNIDO

The economic crisis unleashed by the outbreak of COVID-19 is hurting economies, regardless of income level. The most recent data from UNIDO’s seasonally adjusted Index of Industrial Production (April 2020 vs December 2019) indicate that both lower- and upper middle-income countries have been significantly impacted by COVID-19 (Table 1).

Table 1. Average loss in % in the Index of Industrial Production (IIP) across countries. April 2020 vs December 2019

AVERAGELOSS.PERSOL.UNIDO

Source: UNIDO elaboration based on our Statistic Data Portal.

Industrial production and trade: Huge economic losses are not necessarily associated with high health impacts

We use recent data derived from UNIDO’s Index of Industrial Production (IIP) for our analysis of 49 countries representing around 87 per cent of world manufacturing value added (MVA). A comparison of IIP data (adjusted to take seasonal effects into account) for March 2020 vs December 2019 shows that approximately 81 per cent of countries have experienced a decrease in industrial production of 6 per cent on average. A comparison of data for April 2020 vs December 2019 reveals that industrial production fell by 20 per cent on average in 93 per cent of countries. (A comparison between April 2020 and March 2019 as well as between March 2020 and March 2019 shows similar results (an increase in the average decrease in IIP and in the number of countries affected)). 

Manufacturing in crisis in many countries

All manufacturing industries were affected by the crisis over the period March 2019–April 2020. The share of countries that experienced a decrease in manufacturing varies from 55 per cent (pharma) to 94 per cent (motor vehicles). In a previous UNIDO COVID-19 economic impact analysis, pharma was actually identified as one of the very few “winners”, while motor vehicles was (and continues to be) one of the biggest “losers”. This demonstrates that the negative trend continued into April across all industries, even though some industries, such as pharma, seem to be slightly less affected than other more vulnerable industries.

Figure 1. Share of countries (%) registering a decrease in industrial production over the period March – April 2020 in different industries

industries according to indicator. PERSOL. UNIDO

Note: Industries according to indicator.

Source: UNIDO elaboration based on our Statistic Data Portal.

Trade losses for nearly all high- and lower income countries in March – April 2020

Over the period March – April 2020, trade trends closely followed those for industrial production. Forty-three out of 46 countries experienced a lower level of trade in goods. South Africa, India, Mexico, France and Italy are the five countries that suffered the highest reductions in trade volume over that period. Israel, China and Chile recorded an increase in trade. China further consolidated its path of rapid recovery, as already highlighted in a previous UNIDO COVID-19 economic impact analysis. Note that the top 10 countries with the highest reductions in trade volume includes both high-income and upper middle-income economies, reinforcing the finding in a previous issue of the UNIDO COVID-19 economic impact analysis that COVID-19 has a severe impact on both industrialized and developing countries.

Figure 2. Change of trade in goods in % by country for the period March – April 2020

COUNTRIES ACCORDING TO INDICATOR. PERSOL. UNIDO

Note: Countries according to indicator.

Source: OECD trade in goods statistics

These figures clearly show that the COVID-19 crisis has affected the majority of countries around the world. Fresh primary data collected by UNIDO in several Asian countries provides some preliminary evidence on the pandemic’s impact on firms.

Not all industries are equally affected: textile and apparel firms expect to be the hardest hit; chemical and plastic expect to be the least impacted by COVID-19

Firms in the textile, apparel and leather industries tend to anticipate the largest plunge in profits and jobs, while firms in the chemical, plastic and rubber industries expect below average decreases (Figure 3). The basic materials industries also expect their profits and employment to be hit hard. In the furniture, recycling and printing industries, a large share of firms is anticipating a serious decline in profits (54 per cent), but only 16 per cent expect that they will be forced to announce drastic job cuts, which lies below the average share of firms included in the survey. Similar trends are observed in the machinery and transport equipment industries.

Figure 3. Expected impact of COVID-19 on firms’ profits and employment, by industry

EXPECTED IMPACT.PERSOL.UNIDO

Note: Industries according to indicator.

Source: UNIDO elaboration.

The main problems firms are facing also differ across industries

The different expectations across firms arise from the very challenges they face (Figure 4). Two major challenges widely reported by firms are 1) the contraction in demand, and 2) the payment of wages. The most pressing problem in labour-intensive industries (such as textile and apparel) seems to be the payment of wages. The plunge in demand is a widespread concern among other industries. Firms in the textile and apparel industry are also particularly concerned about logistics problems, while upstream and downstream chain disruptions are deemed a more serious problem for firms in the chemical, rubber and plastic industries than for other industries.

Figure 4. Top 5 problems reported by firms, across industries

TOP5PROBLEMSOF FIRMS.PERSOL.UNIDO

Note: The values in brackets indicate the share of firms in the industry that reported this particular problem.

Source: UNIDO elaboration.

A shift towards conditionality

The impact of COVID-19 on businesses and the subsequent recession have prompted many governments to explore the option of making businesses more conducive to inclusive, sustainable growth. For example, the EU Recovery Plan for Europe envisages that the EU Recovery and Resilience Facility, together with the Just Transition Mechanism, will focus on investments in line with Europe green and digital transitions. The IMF is calling on countries to implement green recovery plans when elaborating the structural reforms necessary for further macroeconomic development. Individual countries are following a similar path: the Republic of Korea, Germany and the United States, for example, are promoting the greening of the construction sector (IISD 2020). Others are using state funds allocated for COVID-19 recovery to build more resilient healthcare systems (WHO 2020) or to reduce their dependence on imports of essential goods. This implies that the funds governments are allocating to mitigate the effects of the pandemic have become more conditional, and could eventually lead to a healthier, more resilient and productive economy (Mazzucato and Andreoni, 2020). For this to become a reality, however, governments must restore their capacity to design, implement and enforce conditionality among the recipients of financial support.

Some implications and some guidance: moving forward, developing countries need to start preparing for a resilient, inclusive and sustainable industrial recovery

Governments around the world and the international community at large have mobilized efforts to cushion the immediate effects of the crisis, especially in the developing world, with the countries covered in our analysis being no exception. However, the fact that SMEs are less likely to receive government support—in line with the fact that they generally face more obstacles in access to finance—serves as a warning sign and calls for improved policy responses to address the additional problems such firms are dealing with due to COVID-19. The composition and development of policy mixes throughout the different stages of the crisis as well as their effects on businesses and industries is another area that deserves attention. These effects should be continuously monitored as soon as the relevant data become available. In this regard, our analysis also sheds light on the absence of a visible strategy and policies to support business resumption and reorientation. How developing countries tailor these measures today will affect their prospects for building resilient, inclusive and sustainable post-crisis industrialization in the future. China, Europe and the United States have already initiated aggressive plans to reignite and bolster their productive capabilities and innovation. Developing countries must also seize the opportunity and start preparing now to prevent the existing asymmetries from widening even further.  

Disclaimer: This brief provides information about a situation that is rapidly evolving. As the circumstances and impacts of the COVID-19 pandemic are continuously changing, the interpretation of the information presented here may also have to be adjusted in terms of relevance, accuracy and completeness. The views expressed in this article are those of the authors based on their experience and on prior research and do not necessarily reflect the views of UNIDO (read more).

https://www.unido.org/stories/coronavirus-economic-impact-10-july-2020#story-start

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