Executive summary
The rapid spread of the COVID-19 pandemic has affected people and economies across the world. The suddenness and magnitude of the shock sent countries into the worst recession since the Second World War. But while the effects of the pandemic are global, they have been far from uniform. Both the severity of the outbreak itself and the related economic impacts have differed in timing and intensity across countries, industries, firms and people.
It is vitally important to identify and decrypt the factors that can make economies more resilient to severe shocks like the one caused by COVID-19. Understanding the characteristics that enable sectors, firms and workers to maintain production and employment can help countries better prepare for future crises. It can also guide policy makers in monitoring impacts as shocks unfold, as well as in developing and targeting inclusive support and recovery strategies.
This report takes a forward-looking, analytical perspective, combining recent evidence from the crisis with long-term structural firm and industry indicators to offer insights into the transmission channels that ultimately determine the resilience of economies. As well as analysing the supply restrictions characterising the lockdowns that marked the COVID-19 pandemic, it takes a forward-looking perspective on the impacts of the recession and the societal changes catalysed by the crisis.
The impacts of crises differ markedly between countries, industries, types of firms and groups of workers. Characteristics of each can amplify – or mitigate – the effects of crises. The analysis shows that industry characteristics can leave some sectors of activity more vulnerable – or more resilient – to crises such as the COVID-19 pandemic. Much of the initial heterogeneity in the pandemic’s impact can be attributed to whether or not sectors were considered essential by governments, and therefore allowed to operate through lockdowns. For non-essential industries, specific features at this level play a large role. The ability to telework and the digitally enabled delivery of goods and services were key factors for resilience and continued productivity. Beyond the immediate crisis period, interlinkages between industries and countries, the sources of demand for the final products (e.g. consumers, government spending, private investment) and financial constraints faced by firms will play a key role in shaping the impact on production and demand.
At the firm level, the crisis risks having long-lasting effects on business dynamics and exacerbating the pre-existing divides between firms – especially gaps between large and small firms. Both the entry of new firms and the exit of existing ones slowed considerably during the initial stages of the pandemic – reflecting high uncertainty, a temporary halt to business activity in many areas, and measures put in place to temporarily prevent insolvencies. That said, there is optimism in the recovery period for productive resource reallocation to new and innovative start-ups, as firm entry rebounded in several countries. Policies for the post-COVID-19 era must seek to reinforce business dynamism while embracing possible long-term changes in consumer preferences and demand. Although supporting viable firms is important, enabling the exit of unviable businesses is crucial to allow a redirection of resources to new firms. To help drive the recovery, young firms in particular merit ongoing support given their critical role for innovation, new employment and productivity growth, and ensuring competition. Policy should also address difficulties firms will likely face in accessing finance for longer-term, productivity-enhancing investments, which are important for productivity and economic growth.
As the virus spread globally via the movement of people, the COVID-19 pandemic demonstrated the interconnectedness of countries and industries. Restrictions in mobility and economic activity reignited a longstanding debate about the risks associated with internationally fragmented production. Even though small and open economies are most exposed to these disruptions, more connections can also imply higher resilience. For example, disruptions to domestic production can be mitigated by relying on imports, and demand surges can be met through global value chains. Instead of reshoring, strengthening international co-operation and diversifying suppliers can be efficient risk mitigation strategies.
Workers have experienced the crisis differently, depending on their gender and also their skills, with potentially adverse effects on inclusiveness and labour market inequality. Women have been less exposed to job loss during the crisis, due to making up the majority of the workforce in primarily essential – but also “teleworkable” – industries. However, mothers were often hit hardest by lockdowns due to increased childcare obligations, forcing some women to drop out of the labour force, or to reduce working hours. The ability to telework also critically hinges on having the skills to do so, and women possess lower average digital skills than men. The pandemic demonstrated the urgent need to close digital skills gaps, not only by gender, but also for disadvantaged age and education groups.
Digital upskilling is also crucial from a longer-term perspective: one of the main insights from the pandemic has been the key role of digital technologies for resilience. The digital transformation has accelerated through the crisis, with these skills having become indispensable for many aspects of life, including work, social contact and well-being. If accompanied by the right policies, digital technologies can increase productivity, create new business opportunities and help reduce carbon emissions over the long term. Telework has a large transformative potential and can increase worker well-being and productivity. However, the ability to use digital technologies depends on many supporting factors, including firms’ ability to finance investments, access to communications infrastructure, and knowledge and skills.
As countries recover from COVID-19, it is vitally important not to lose sight of other grand challenges the world is facing. The recovery period is not only a time to build back stronger with more resilient systems; its power can also be harnessed – through strategic policy and strengthened international co-operation – to address challenges such as inequality and the green and digital transformations. Governments and firms should take advantage of this rare opportunity to rebuild in a way that helps to achieve these urgent global goals.