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Huge losses from coronavirus ‘will require policy shifts’

Economist calls for global cooperative investment in public health in all countries

Global economic losses caused by the Covid-19 coronavirus pandemic could reach almost $14 trillion if high infection rates persist over several years, one of Australia’s top economists has said.

Warwick McKibbin, an economics professor at the Australian National University in Canberra, estimates that even a “low-severity scenario” will cause global losses of around $3.6tn and more than 15 million deaths globally.

In a high-severity scenario, the potential cost to Australia’s economy in 2020 is $156 billion.

McKibbin and Roshen Fernando, a PhD student with the ANU Crawford school of public policy, used economic modelling to produce a world-first wide-ranging global assessment of the impact of the Covid-19 pandemic. Their research paper looks at seven scenarios, ranging from low to high severity.

“Even in the best-case scenario of a low-severity impact, the economic fallout is going to be enormous and countries need to work together to limit the potential damage as much as possible. This is particularly the case when it comes to the potential loss of life,” McKibbin said in a university statement.

The study says a range of urgent and long-term policy responses are needed, particularly in the areas of health and poverty alleviation.

“In the short term, central banks and treasuries need to make sure that disrupted economies continue to function while the disease outbreak continues,” it says.

“In the face of real and financial stress, there is a critical role for governments. While cutting interest rates is a possible response for central banks, the shock is not only a demand management problem but a multifaceted crisis that will require monetary, fiscal and health policy responses.”

McKibbin and Fernando warn that “vastly more investment in public health and development” is needed across all countries and especially in the poorest nations, with all major countries needing to participate actively.

“This study indicates the possible costs that can be avoided through global cooperative investment in public health in all countries. We have known this critical policy intervention for decades, yet politicians continue to ignore the scientific evidence on the role of public health in improving the quality of life and as a driver of economic growth.”

McKibbin is a former board member of the Australian Reserve Bank and a non-resident senior fellow at the Brookings Institution in Washington DC. He is the inaugural director of the ANU centre for applied macroeconomic analysis.