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The coronavirus disease 2019 (COVID-19) pandemic has had uneven
impacts across different countries and regions. The speed of
recovery is also likely to differ widely, depending on a range of
underlying factors, such as public health capacity, economic
policies, and the political environment. To help navigate the
different pathways out of the COVID-19 pandemic and understand the
implications for the business environment, we produced a
comparative recovery index based on the impact of
COVID-19 across several dimensions and the speed
of recovery to pre-pandemic levels.
Impact of the pandemic: The
ongoing impact of COVID-19 as indicated by the total COVID-19 virus
cases per million, unemployment rate, and state failure risk
score.
Speed of recovery from the
pandemic: The projected speed of recovery to
pre-COVID-19 (end-FY2019) levels, based on: vaccinations per
hundred of population, new cases per million, change in real GDP
from previous year, government instability risk score, policy
instability risk score, and projected number of quarters to return
to Q4 2019 GDP level.
Moderate impact, fast recovery
A slow initial response to the onset of COVID-19 in countries
like the United State and the United Kingdom have contributed to
some of the highest total case numbers. However, their recovery is
among the fastest, being supported by rapid progress in rolling out
vaccinations and by providing the strongest fiscal relief to
households and businesses (e.g. furlough schemes), as demonstrated
by comparatively low rates of unemployment. The pace of recovery in
these countries is signaled by low projected GDP 'crossovers': the
number of quarters of real GDP growth, based on our current
projections, required to return real GDP levels to levels at
end-2019, i.e. prior to the onset of the -pandemic.
Early signs of recovery are indicated by our monthly Purchasing
Managers' Index (PMI) survey of activity and output. The impact of
COVID-19 was far greater than compared with the 2008-09 global
financial crisis, although the subsequent rebound is sharper.
However, the pace of recovery varies widely by the commercial
sector, with output contracting most in sectors directly affected
by lockdown restrictions, such as accommodation and food services,
transportation, and arts, entertainment, and recreation. By
contrast, the real estate and financial services sectors have
proven to be more resilient.
Recovery for these countries is also likely to less threatened
by political risk, with countries in this category having among the
lowest country risk scores for government instability and policy
instability. These scores indicate the risk of a change of
government, whether scheduled or irregular; and whether the
government's broad policy framework, including its response to
COVID-19, is likely to be unstable.
High impact, slow recovery
The impact of COVID-19 was greatest in countries that have weak
or no health care systems and low state capacity, like Iraq,
Lebanon, Venezuela, and Yemen, as reflected in them having the
highest country risk scores for state failure: the risk the state
is unable to exclusively ensure law and order, and the supply of
basic goods and/or is unable to respond to or manage current or
likely future emergencies. Given the limited capacity for testing
and tracing, and the inability or refusal to impose restrictions on
movement and travel, total case numbers for countries in this group
are much higher. Limited testing also implies greater uncertainty
around their total number of cases. Other countries such as India
that are now experiencing a 'second wave' outbreak of the COVID-19
virus or a new variant of the virus may also register within this
category, despite previously showing early signs of a strong
economic rebound.
An unprecedented rise in global debt since 2010 has also
increased the fiscal stress on many countries in emerging markets
that have been significantly impacted by the pandemic, such as
Argentina, Mozambique, and Zambia. Increases in debt servicing
costs reduce the fiscal outlays available for financing public
health responses and procuring vaccines, slowing the pace of
recovery. Moreover, a narrow fiscal room means a rise in interest
rates (perhaps spurred by inflation), higher commodity prices, and
persistent twin deficient in current and fiscal accounts jeopardize
the state's commitment to expenditures on which recovery
depends.
Low impact, fast recovery
A smaller group of countries experienced a much more limited
impact from COVID-19 in terms of total case numbers and are
projected to recover quickly. The total cases per million for New
Zealand, South Korea, Japan, and Taiwan are among the lowest in the
world, stemming primarily from reliable testing, tracing, and
statistical reporting as suggested by the low state failure risk
scores for these countries. Consequently, the rate of new cases is
being kept low. Given their effective containment and prevention of
new virus infections, these governments could ease restrictions on
businesses and movement more quickly, supporting a fast pace of
recovery and reducing pressure on employment rates. For instance,
New Zealand and Taiwan are both projected by our economists to
return to pre-COVID-19 levels of GDP within one quarter.
About the Index
Epidemiological data is taken from Our World in Data
and is updated daily. Economic data and projections are updated
either monthly and/or quarterly as our Global Economics team makes
scheduled revisions to their forecasts. Country Risk scores are
updated ad hoc (and reviewed quarterly), depending on the
analyst's developing assessment of risk.
Posted 24 May 2021 by Chris Suckling, Associate Director, Risk Quantification, S&P Global Market Intelligence and
Dr. Marie Lechler, Associate Director, Economics & Country Risk, IHS Markit
