A new monitor developed by the European Bank for Reconstruction and Development (EBRD) reveals that many economies in the EBRD regions are better positioned to exit social distancing than other emerging-market and advanced-economy comparators.
The monitor assesses the ease with which economies are able to exit social distancing and return to a path of economic growth. It is a follow-up to the monitor released in early April, which examined the resilience of economies in the EBRD regions to the impact of the Covid-19 pandemic.
The findings of the monitor are in line with the latest forecasts released in May for the EBRD regions, which showed a smaller contraction in 2020 in the EBRD regions than in many advanced economies, and a faster return to growth in 2021.
In most economies in the EBRD regions, the outbreak of Covid-19, as reported in official data, appear to have been less severe than in advanced Europe, the United States and some emerging markets (such as Brazil). In part, this may be due to lower population density, which can also facilitate social distancing.
Compared to other emerging markets, economies in the EBRD regions have less vulnerable labour markets, with fewer small and medium-sized enterprises (SMEs) and self-employed people and lower shares of the population on temporary contracts. SMEs and the self-employed find it more difficult to receive government support packages and people on temporary contracts are more likely to be made unemployed.
Fiscal stimulus packages in the EBRD regions, however, have often been larger than in other economies. The state also employs larger shares of the populations and public-sector employees may have been better shielded from the financial hardship associated with the crisis. Internet searches for unemployment benefits and welfare support have increased significantly less in economies with state-dominated employment than in economies with private-sector dominated employment.
Recoveries in the longer term will depend on the extent to which the crisis has inflicted permanent damage and, more generally, the level of economic diversification. Sectors such as retail, transportation and storage, accommodation and food services and arts and recreation may face permanent damage. This could weigh on growth prospects in tourism-dependent economies such as Cyprus, Greece or Montenegro.
Risks to recovery may also be greater in countries that are more dependent on a few export products or export to only a few trading partners. Advanced economies’ exports tend to be more diversified both in terms of sectors and geographically. In contrast, commodity exporters tend to be highly concentrated in terms of their export baskets and countries such as Mongolia or Belarus have highly concentrated destination markets.