Economic prediction models irrelevant due to the unprecedented changes brought by the Covid-19 pandemic, according to leading macroeconomic influencers

GlobalData Thematic Research 9 June 2020 (Last Updated June 9th, 2020 07:24)

Economic prediction models irrelevant due to the unprecedented changes brought by the Covid-19 pandemic, according to leading macroeconomic influencers

The Covid-19 pandemic has forced experts to predict what lies ahead as economies gradually start to re-open. The economic forecasts made by economists using known models, however, may not be relevant in the current scenario as these models do not take into account the unpredictable changes brought by the pandemic.

Branko Milanovic

Branko Milanovic, an economist, shared his article on how the Covid-19 pandemic has brought unpredictable social and political changes to the world. Economists use models that consider an economy as a self-contained system that is vulnerable to economic shocks.

The current pandemic, however, has aggravated several social and political changes such as the trade war between the US and China, and the protests against racism in the US. The pandemic also presents a number of unknown challenges such as the possibility of a second wave and its impact on countries. In such a situation, any economic models may not closely predict the future of the global economy.

Linda Yueh

Linda Yueh, an economist at the University of Oxford, tweeted about how the closure of international travel and the ban on entry of foreign citizens has helped several Pacific nations to remain free from the Covid-19 virus.

Yueh noted that the closure has impacted the economy, which is heavily dependent on tourism. In countries such as Fiji, Palau and Vanuatu, tourism accounts for a third of jobs and also accounts for at least 40% of gross domestic product.

Konstantina Beleli

Konstantina Beleli, an economist and journalist, shared an article on how the pandemic has impacted the aerospace manufacturers in France’s fourth largest city, Toulouse.

The aerospace manufacturers in the region were working overtime for supplying parts for the aerospace industry, until the pandemic halted all manufacturing activity. While France’s economy shrank by 33% during the initial weeks of the pandemic, Toulouse’s economy shrank by 38% due to its reliance on aerospace industry.

As the pandemic continues, manufacturers fear that Toulouse may face a similar fate as that of Detroit after the recession in the auto industry.

Stephany Griffith-Jones

Stephany Griffith-Jones, an economist, shared an article on World Bank’s projections on emerging markets. The World Bank in a new report noted that the global economy is projected to shrink by 5.2%, while emerging markets are projected to shrink by 2.5% for the first time in 60 years.

The report notes that the recession caused by the pandemic is expected to push millions of people below the poverty line as per capita incomes decline by 3.6%.