Economics

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Coronavirus update: Decades of development progress are at risk

Geoff Riley

29th July 2020

The World Bank is forecasting that the covid-19 crisis will lead to a reduction in per capita incomes for 90 per cent of countries around the world.

Emerging and developing nations being badly affected by this negative global economic shock. Decades of development progress seem to be at risk.

According to the World Bank’s Global Economic Prospects (June 2020):

“Emerging market and developing economies (EMDEs) are expected to shrink by 2.5% in 2020, their first contraction as a group in at least 60 years. As a result, per capita incomes are expected to decline by 3.6%, which will tip millions of people into extreme poverty this year.”

The fear is that more than 100 million people might be driven back into extreme poverty as a consequence of the crisis.

Lower income countries have under-developed and under-resourced health care systems and social welfare safety nets that offer far less income protection than in advanced countries.

Relatively poorer countries also have high levels of sovereign debt with debt service costs significantly higher than the bond yields of high income, developed nations.

Growth is at risk from a slump in demand in the richest countries of the world which has negative consequences for demand for raw materials and components many of which flow from supply-chains linked back to emerging countries.

The fall in world prices for many basic extractive commodities has led to a deterioration in the terms of trade for developing country exporters and threatens to lead to slower economic growth as exports are a key source of aggregate demand.

World trade is forecast to contract by 13% in 2020 and there are renewed fears of a return to more tariff and non-tariff measures as some countries decide to protect employment and incomes in their own domestic economies.

Remittances – the money that migrants send back home and an important source of external development finance for many countries – are projected to decline by 20% in 2020. There has been a sharp fall in employment and wages for migrant workers who are exposed to economic recessions in countries where they have moved.

Remittances are crucial in helping to bring down extreme poverty not least because they help improve nutritional outcomes and are associated with higher spending on education and reduce child labour in disadvantaged households.

Suggested reading: World Bank Predicts Sharpest Decline of Remittances in Recent History

Geoff Riley

Geoff Riley FRSA has been teaching Economics for over thirty years. He has over twenty years experience as Head of Economics at leading schools. He writes extensively and is a contributor and presenter on CPD conferences in the UK and overseas.

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