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The Peculiarity of the COVID-19 Economic Crisis and its Policy Implications

Author Kang, Duyong Date 2020.08.27 Issue No
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The COVID-19 crisis is substantially different from past economic crises in several aspects. Awareness of these differences is important in devising an effective policy response. 

 

First, past crises were caused primarily by economic factors. But the pandemic was caused by a coronavirus.

● Because human economic activity played an important role in COVID-19’s outbreak and spread, the ensuing crisis was caused by the interaction of such activity, the environment and ecosystems.

● In such a context, the COVID-19-induced crisis is somewhat similar to climate change. 

 

Second, the unusual nature of the pandemic’s causes and ensuing crisis limits the role of economic policy can play in overcoming it.

● The most important factor in the degree and length of the recession is not the effectiveness of economic policy but the scale and scope of the viral threat and whether it can be controlled.

● To control the severity of the recession, the optimal balance must be struck between efforts to control COVID-19 and those to stimulate the economy.

● Vaccines and treatment are crucial for controlling an epidemic. Delays in their development and supply make a long-term recession inevitable. Preparing for this possibility is also necessary. 

 

Third, the degree to which each economic sector was damaged by the recession varies significantly.

● Amid severe recession, ICT and other non-contact sectors saw revenues and profits surge.

● The rate of deviation in growth rates for individual industries as of Q2 2020 was 2.5 times the average of past economic crises.

● This implies that rather than provide universal support, a policy should focus public assistance to the socially vulnerable and industries hit hardest by the recession.  

 

Fourth, the COVID-19 crisis will have a lasting socioeconomic impact.

● Over the mid to long term, this crisis will likely effect changes in industrial structure, economic policy, and the government’s role, heightened awareness of environmental and ecological disasters including infectious diseases, and more aggressive resource appropriation for responses to such threats. ?