• Insights

Our Report for the World Economic Forum, Davos 2022

As Covid-19 continues to bite, the questions for every country around the world are what kind of government measures have succeeded in shoring up the economy and setting the stage for economic recovery - and what kind of policies have failed to achieve these aims?

In writing this report, our aim was to find out what happened to countries whose governments focussed solely on supporting their citizens’ health over the last two years. Did this help or hinder the long-term economic recovery? And conversely, what happened to countries whose governments focused only on the economic recovery? Did those countries experience greater social harm?

We compared government responses to the Covid-19 crisis in 20 countries over two timeframes, to identify the most effective policies. For the first timeframe, we analysed country performance since the beginning of the pandemic (January 2020 – October 2021). For the second, we analysed how well governments have recovered since the peaks of the crisis in terms of GDP loss (July 2020 – October 2021).

These were our main findings:

  • South Korea has tamed the pandemic (so far!): the country outscored the others we looked at on every level. Its economy has been relatively spared and is recovering confidently. The health system and citizens have remained insulated from the deadly virus and all of this with government spending on additional support measures at only 6.4% of its GDP. South Korea shares the podium with Australia and New Zealand, which also show remarkable management of the crisis.
  • Singapore has mastered the recovery: the country’s economy had the strongest economic upsurge, whilst having a relatively low number of Covid-related deaths and the highest vaccination rate, with 80% of the population being fully vaccinated against the virus.
  • Protecting the people protects the economy: we found that the countries that kept the spread of the virus under control and have successfully rolled out their vaccination programmes experience better economic performance and stronger recovery.
  • There is no correlation between the strictness of a country’s countermeasures and its health score: restrictive rules do not necessarily help contain the virus. It appears that what matters is to have reasonable and targeted measures.
  • Investing in fiscal measures supports recovery: the countries with the strongest recovery are also the ones that, since January 2020, have invested the largest share of their GDP in direct fiscal stimuli.
  • A sudden or early phase-out of the support measures can jeopardise further economic recovery.

Policy recommendations:

  • Protect the people: governments must continue their vaccination efforts and implement targeted measures to avoid the spread of the virus. As our analysis shows, the state of the pandemic in a country and its economy are linked: saving lives saves the economy.  Yet, strict rules do not necessarily translate to efficiency: well-targeted policies are needed.
  • Maintain support measures: While measures to support the economy across the board may not be financially sustainable, targeted measures will continue to be a crucial way of avoiding significant labour market disruption with potentially long-lasting scarring effects. A sudden or early withdrawal of government support measures risks exacerbating labour market disruptions and could jeopardise the economic recovery. Governments should ensure these support measures reach all workers, including – or, rather, especially – those in atypical forms of work.
  • Never waste a good crisis: The Covid pandemic has caused certain economic sectors and activities to grow and others to wither, in addition to more long-term trends that are also prompting labour market transitions. Governments should encourage and enable companies and jobseekers to prepare for these transitions by investing in career management, including via re- and upskilling.
  • Prepare regulatory frameworks for the Reset Normal: The world of work has been changing since before the Covid crisis. The pandemic has put additional focus on some aspects, such as the need to invest in worker wellbeing and work-life balance, and the need to establish a clear set of rights and responsibilities in the context of remote working. Workers’ desire to work more flexibly paired with a need for labour market agility also requires governments to rethink regulation on diverse forms of work such as agency work and self-employment. Governments need to make haste in implementing the necessary labour market reforms to set their economies up for success.