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Many countries are now in the second phase, as they reopen, with early signs of recovery, but risks of second waves of infections and re-imposition of lockdowns. Surveying the economic landscape, the sheer scale and severity of the Global Lockdown are striking.

Most tragically, this pandemic has already claimed hundreds of thousands of lives worldwide. The resulting economic crisis is unlike anything the world has seen before.

This is a truly global crisis. Past crises, as deep and severe as they were, remained confined to smaller segments of the world, from Latin America during the 1980s to Asia in the 1990s. Even the global financial crisis 10 years ago had more modest effects on global output.

For the first time since the Great Depression, both advanced and emerging market economies will be in recession in 2020. The forthcoming June World Economic Outlook Update is likely to show negative growth rates even worse than previously estimated. This crisis will have devastating consequences for the world’s poor.

Aside from its unprecedented scale, the Global Lockdown is playing out in ways that are very different from past crises. These unusual characteristics are emerging all over the world, irrespective of the size, geographic region, or production structure of economies.

First, this crisis has dealt a uniquely large blow to the services sector. In typical crises, the brunt is borne by manufacturing, reflecting a decline in investment, while the effect on services is generally muted as consumption demand is less affected.

This time is different. In the peak months of the lockdown the contraction in services has been even larger than in manufacturing, and it is seen in advanced and emerging market economies alike.

There are exceptions—like Sweden and Taiwan Province of China, which adopted a different approach to the health crisis, with limited government containment measures and a consequently proportionately smaller hit to services vis-à-vis manufacturing.

It is possible that with pent-up consumer demand there will be a quicker rebound, unlike after previous crises. However, this is not guaranteed in a health crisis as consumers may change spending behavior to minimize social interaction, and uncertainty can lead households to save more. In the case of China, one of the early exiters from lockdown, the recovery of the services sector lags manufacturing as such services as hospitality and travel struggle to regain demand.

Of particular concern is the long-term impact on economies that rely significantly on such services—for example, tourism-dependent economies.

Second, despite the large supply shocks unique to this crisis, except for food inflation, we have thus far seen, if anything, a decline in inflation and inflation expectations pretty much across the board in both advanced and emerging market economies.

Despite the considerable conventional and unconventional monetary and fiscal support across the globe, aggregate demand remains subdued and is weighing on inflation, alongside lower commodity prices. With high unemployment projected to stay for a while, countries with monetary policy credibility will likely see small risks of spiraling inflation.

Third, we see striking divergence of financial markets from the real economy, with financial indicators pointing to stronger prospects of a recovery than real activity suggests. Despite the recent correction, the S&P 500 has recouped most of its losses since the start of the crisis; the FTSE emerging market index and Africa index are substantially improved; the Bovespa rose significantly despite the recent surge in infection rates in Brazil; portfolio flows to emerging and developing economies have stabilized.

With few exceptions, the rise in sovereign spreads and the depreciation of emerging market currencies are smaller than what we saw during the global financial crisis. This is notable considering the larger scale of the shock to emerging markets during the Great Lockdown.

This divergence may portend greater volatility in financial markets. Worse health and economic news can lead to sharp corrections. We will have more to say about this divergence in our forthcoming Global Financial Stability Report.

One likely factor behind this divergence is the stronger policy response during this crisis. Monetary policy has become accommodative across the board, with unprecedented support from major central banks, and monetary easing in emerging markets including through first time use of unconventional policies.

Discretionary fiscal policy has been sizable in advanced economies. Emerging markets have deployed smaller fiscal support, constrained to some extent by limited fiscal space. Furthermore, a unique challenge confronting emerging markets this time around is that the informal sector, typically a shock absorber, has not been able to play that role under containment policies and has instead required support.

We are now in the early stages of the second phase as many countries begin to ease containment policies and gradually permit the resumption of economic activity. But there remains profound uncertainty about the path of the recovery.

A key challenge in escaping the Great Lockdown will be to ensure adequate production and distribution of vaccines and treatments when they become available—and this will require a global effort. For individual countries, minimizing the health uncertainty by using the least economically disruptive approaches such as testing, tracing, and isolation, tailored to country-specific circumstances with clear communication about the path of policies, should remain a priority to strengthen confidence in the recovery.

As the recovery progresses, policies should support the reallocation of workers from shrinking sectors to sectors with stronger prospects.

The IMF, in coordination with other international organizations, will continue to do all it can to ensure adequate international liquidity, provide emergency financing, support the G20 debt service suspension initiative, and help countries maintain a manageable debt burden.

The IMF will also provide advice and support through surveillance and capacity development, to help disseminate best practices, as countries learn from each other during this unprecedented crisis.

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How is the pandemic likely to evolve as it spreads to poorer countries?

In a new working paper, we attempt to answer one piece of that question, predicting the infection fatality rate, or IFR, for COVID-19 for 187 countries based on demography, comorbidities, and the strength of health systems.

The IFR numbers we report are somewhat higher—sometimes dramatically so—than the figures given for many developing countries in earlier influential studies, including the Imperial College team’s scenarios for the global pandemic and a recent report by the WHO Africa bureau.

That difference can be chalked up to how we incorporate two factors: pre-existing health conditions, and the relative strength of health systems.

For many developing countries, comorbidities partially offset the advantages of youth

A recent study in Science by Salje et al., for instance, finds that with French-level healthcare, the probability of dying with COVID-19 rises roughly eight-fold when moving from the 60-69 age group to the 70 and above range. This is good news for developing countries, which generally have a much younger population than France.

Most previous forecasts of the COVID-19 infection fatality rate have incorporated this demographic advantage. However, they have generally not included the offsetting effect of cross-country differences in comorbidities.

Those comorbidities—such as diabetes, hypertension, and ischemic cardiovascular diseases— matter a lot. Data from Italy show that roughly 96 percent of COVID-19 fatalities report one or more relevant comorbidities.

Inverting that probability using Bayes’ rule and data on France’s IFR and comorbidity distribution, we find that the probability of dying from a COVID-19 infection for patients under 40 is roughly 134-times higher with a relevant comorbidity than without.

Developing countries generally have lower rates of relevant comorbidities compared to high-income countries (where the best measures of infection fatality rates come from). But whereas comorbidities are concentrated among the elderly in rich countries, some developing countries—such as South Africa—report a considerably higher share of these conditions among middle-aged people.

Future work would benefit from more careful treatment of comorbidities like HIV/AIDS that have higher prevalence in lower-income countries. But even a simple adjustment for comorbidities partially undermines many developing countries’ demographic advantages.

Evidence from other viral respiratory infections suggests a much bleaker scenario for COVID-19 in the developing world

So far, our estimates assume that an individual infected with COVID-19 in, say, Uganda has the same probability of dying as someone with the same sex, age, and number of comorbidities in France. Clearly that’s optimistic, given the overall capacity of Uganda’s health system relative to France’s. But exactly how optimistic?

To gauge how much fatality rates might vary with health system capacity, we draw on estimates of the infection fatality rate for another viral respiratory infection, namely influenza. We focus on children under five years old, to purge variation in age and comorbidities that typically begin later in life, and scale the odds ratio of dying from COVID-19 by the ratio of child influenza death rates across countries by income group.

Adjusting for health-system capacity in this way yields COVID-19 infection fatality rates that are considerably higher than previous estimates for the developing world. For the five countries in Sub-Saharan Africa with the largest confirmed COVID-19 epidemics to date, our results are roughly twice as high as those from Imperial College, which does not factor in comorbidities or health system strength beyond a simple capacity constraint on hospital beds.

And they are roughly eight times higher than forecasts from the WHO Africa, which do not adjust for health system capacity and only scale the IFR downward (never upward) due to comorbidities.

Comparing predicted COVID-19 infection fatality rates across studies

Our results are more in line with the Imperial College predictions for Europe, as shown in the bottom panel above. For the five European countries shown, we can also compare to a more “gold standard” benchmark, i.e., infection fatality rates calculated on the basis of seroprevalence studies of a random sample of the population (blue bars).

Both our results and the Imperial college results match these seroprevalence studies fairly well on average, but fail to explain much of the intra-European variance (some of which may be due to variance in how deaths are counted, e.g., Belgium’s fairly liberal definition of a COVID-19 death to include all unexplained nursing home deaths).

In short, our IFR estimates seem fairly plausible for Europe, where we have an independent reference point, and our results suggest that earlier predictions for developing countries that ignore health system capacity may be far too optimistic.

In line with recent news reports, it’s likely young people will make up a larger share of COVID-19 deaths in the developing world

In the United States to date, patients over 75 years old represent over 60 percent of COVID-19 deaths. In Italy, the number of fatalities above 70 is 85 percent.

Both demography and weak health systems explain why COVID-19 deaths are more concentrated among younger people in the developing world

Although predicted IFRs display a steep age gradient in all contexts, due to demographic differences the bulk of deaths in low- and lower-middle income countries is predicted to come from middle-aged patients (40-70).

Less obviously, differences in health system capacity are also likely to flatten the age gradient of COVID-19 deaths in developing countries. In Europe, data is consistent with the hypothesis that intensive care saves the lives of a higher proportion of young than elderly COVID-19 patients. Thus, when high-quality intensive care is lacking, the advantages of youth are more muted.

These estimates are far from the final word on this question. But we hope that our calculations provide an important cautionary note about developing countries’ demographic advantages in facing down COVID-19.

Planning for the ongoing pandemic response and calibration of containment policies should factor in the wide variation in predicted IFRs across contexts. Specifically, policymakers in low-income countries should be cognizant that any demographic advantages with respect to COVID-19 fatality rates are likely to be partially offset by disadvantages in terms of the age-distribution of comorbidities, and even more so by gaps in health system capacity.

*Justin Sandefur is a senior fellow at the Center for Global Development (CGD) ; Selene Ghisolfi is an economics post-doc at the Laboratory for Effective Anti-poverty Policies Bocconi, and a PhD student at the Institute for International Economic Studies, Stockholm University; Ingvild Almås is a professor of economics at the Institute for International Economic Studies, Stockholm University; Tillmann von Carnap is a PhD student at the Institute for International Economic Studies, Stockholm University; Jesse Heitner is a health economist at Aceso Global; and Tessa Bold is an associate professor at the Institute for International Economic Studies, Stockholm University.

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