The COVID-19 Crisis and Its Implications for Economic Policy

The COVID-19 pandemic is not only a public health crisis, but also a complex global economic crisis with a profound socio-economic effect unprecedented since the Spanish flu. Unlike the 2008 global financial and economic crisis, the current economic recession is interlocked with a public health emergency at a time of weak multilateral collaboration, which has exposed the vulnerability of the world economic system. The pandemic has also revealed vast differences in government policy responses, highlighting differentiated industrial policies and developmental roles of governments. In contrast to the last major global economic crisis, most governments in developed and developing economies are pursuing expansionary economic stimulus to accelerate economic recovery and develop productive transformation (including green transformation). This paper focuses on key lessons that have implications for economic policy: First, it points to the uneven effects of the crisis and analyses the responses of various governments and the subsequent unbalanced economic recovery, with a specific focus on stimulus packages and their implications for economic policies in developing countries. Second, it suggests that governments with industrial capacities and industrial policy experience have been better positioned to translate industrial capability into an appropriate public health emergency response and productive transformation. Third, it explores the most effective pathway to sustained recovery and will argue that productive transformation requires robust global collaboration.