Global uncertainty reaches new heights

At the risk of overstating the obvious the impact of this pandemic is like nothing seen before

9 April 2020 | Hites Ahir, Nicholas Bloom & Davide Furceri, IMF (Image: Lexscope)

Though the warnings over the past two decades have been more than abundant, the risk of a global pandemic has been largely ignored as previous pandemics have been limited in their geographic spread. COVID-19 is very different, the IMF has reviewed data with some sobering findings.

The coronavirus continues to spread. As more countries impose quarantines and social distancing, the fear of contagion and income losses is increasing uncertainty around the world.

A new measure of economic uncertainty related to pandemics and other disease outbreaks finds that uncertainty around the coronavirus is exceptionally high and is much higher than in past outbreaks.

To quantify uncertainty related to the coronavirus crisis and compare it with previous pandemics and epidemics, we developed the World Pandemic Uncertainty Index (WPUI)—a sub-index of the World Uncertainty Index—for 143 countries starting in 1996.

To construct the index, we tally the number of times “uncertainty” is mentioned near a word related to pandemics or epidemics in the Economist Intelligence Unit (EIU) country reports. To make the WPUI index comparable across countries, we scale the raw counts by the total number of words in each report.

COVID-19 uncertainty outranks all other outbreaks

As this chart shows, the level of uncertainty related to the coronavirus is unprecedented. As of March 31, it is three times the size of the uncertainty during the 2002–03 severe acute respiratory syndrome (SARS) epidemic and about 20 times the size during the Ebola outbreak. The level of uncertainty around the coronavirus is expected to remain high as cases continue to rise and it is still not clear when the crisis will end.

Uncertainty around the current pandemic increased first in China but is now visible in many countries around the world. High levels of uncertainty related to the coronavirus pandemic have been recorded in several other economies with a significant number of cases (such as France, Germany, Iran, Italy, Spain, Switzerland, the United Kingdom and the United States).

Uncertainty around disease outbreaks is highest in advanced and emerging market economies and, while rising, it remains at low levels in low-income economies.

High uncertainty historically coincides with periods of lower growth and tighter financial conditions. And the current level of uncertainty related to the coronavirus crisis is no exception as the economic impact is already visible in the countries most affected by the outbreak.

How can we tackle this rising uncertainty? As the virus spreads around the globe, increased coordinated action will be key to boosting confidence and providing stability to the global economy.