Large country differences in performance are in prospect: and due largely to policy
Performance to date
Recovery from recession typically takes years – between 3 and 6 before output regains its prerecession level. 1 But history is probably an imperfect guide to the present case. Certainly this COVID-19 recession is different: its origins lie outside the economic and financial system; it stands to drive particularly large changes in the structure of demand; and outcomes depend importantly on medical-policy responses.
To date, 84 countries have reported GDP figures for the final quarter of last year; and in just 11 of these had real GDP surpassed its pre-pandemic level. Of the remaining 64 countries yet to regain their pre-pandemic levels, 9 were quite close; the rest lag considerably. 2
The economically best-performing countries have done well for two fundamental reasons:
- They have done better than most at keeping the virus at bay, and
- They have done more than most by way of fiscal stimulus.
Some of the success in keeping the virus at bay has been due to ‘good luck’ – Australia and New Zealand, for example, being both islands, and so far from almost everywhere else, had it much easier in keeping the virus out to begin with.
In addition to any such geographic advantages, however, the governments of the best-performing countries have been guided by, and have acted upon, scientific advice – unlike those of many others, most obviously the US (until 20 January this year) and the UK. Moreover, and for whatever reason, the populations of the more successful countries have largely complied with whatever they have been asked to do (or not to do).
That said, the reputation that some of these governments have established for competence in managing the pandemic is now being challenged by shortcomings in ‘rolling out’ vaccines: and almost the opposite is true of the UK, whose government was one of the worst in the world at managing the virus, but has been one of the best at administering vaccines.
The countries that so far look likely to come out best would seem to be those that, having successfully kept the virus at bay, also prove able to vaccinate a sufficiently large proportion of their populations, so that they will then return to something approximating normal (including reopening international borders); while at the same time avoid making the post-2009 policy error of tightening fiscal policy prematurely.
Thus, looking ahead, we would rank the ‘advanced’ economies into three groups:
- First rank. Taiwan, Australia, New Zealand, and Singapore. 1 (Were ‘developing countries’ to be included in this list, it would also include China, and Vietnam.
- Second rank. This is a bit less clear. We tentatively include the US, given that it now seems to be making a reasonable job of keeping the virus under control, while also doing a good job of getting its population vaccinated quickly. And it is also doing a great deal of fiscal stimulus. Maybe the UK will also graduate into this group, given its success in rolling out vaccines (in contrast to its appalling job of keeping the virus at bay in the first instance).
- Other Asian economies, e.g. Korea and Japan, that might a few months ago, have belonged in the first group now do not, given their difficulties in controlling the virus, and their low rates of vaccination. Japan is also not doing much by way of fiscal stimulus (although Korea is).
- Third rank. Most of continental Europe belongs at the back of any grouping of ‘advanced’ economies – not only because of their difficulty managing the virus and getting their populations vaccinated, but also because (so far at least) they have done relatively little on the fiscal front: considerable stimulus is in prospect, under the €750 bn multiannual financial framework, 3 but in Europe’s stately way this will start getting under way only in the second half of this year.
1 Typically, the time that it takes for GDP to reach its trough and then re-attain its pre-crisis level is to be measured in years, not quarters. The figure below shows, for a selection of the largest depressions and recessions, that over the post-WWII period their duration is typically of the order of 3 to 6 years. As is happens, that was almost how long it took for the G7 aggregate after the 2008 Global Financial Crisis – from 2007 Q4 to 2011 Q2 (see the figure). On such a reckoning it will be between 2023 and 2026 – mid-point 2024 – before G7 GDP is back to its 2019 level.
2 The Figure below shows comparative levels of 2020 Q4 real GDP for a selection of countries, and for the OECD economies in aggregate.
3 On 21 July 2020, EU leaders agreed on a comprehensive package of €1,824.3 bn which combines the €1,074.3 bn multiannual financial framework (MFF) and an extraordinary €758 bn recovery effort, Next generation EU (NGEU). See European Council, Council of the European Union, A recovery plan for Europe. [online]. Available at [Accessed 3 April 2021]