Protecting Productive Assets During the COVID-19 Pandemic

  • Paulo Guilherme Correa; Stefka Slavova; Kate Tulenko
  • Apr 2020
  • The World Bank Group (WBG)
  • International

In understanding the economics of COVID-19, it is useful to start decomposing the issue in four parts:

  1. The public health problem, i.e., the characteristics of the disease and its epidemiology;
  2. The impact of the disease on economic activity;
  3. The connection between the two; and
  4. The economic policy solutions to what has fast become a global pandemic that threatens to destroy the economic and social fabric of modern society.

The upcoming recession is driven by a large, but temporary and controlled, reduction in labor supply. Everything else the same, there is no obvious reason why economic activity should not rebound completely in a relatively short period of time. Yet, many things can go wrong in this process. Potentially productive firms that go bankrupt due to the lack of sales, may never see a second chance with productive assets being, at least in part, lost. Workers will take time to find new jobs and newly hired workers will take time to learn and get trained. Non-performing loans accumulated during the recession could threaten the stability of the banking system.