# **1. Introduction**

The COVID-19 pandemic has generated the deepest and most synchronized decline in economic growth rates across countries in the world since World War II. Current forecasts suggest that more than 90 percent of the countries in the world will experience a contraction in gross domestic product (GDP) per capita in 2020 –surpassing the 85 percent of countries in recession at the height of the Great Depression (World Bank 2020a). Compared with the 2008-09 global financial crisis, this ongoing pandemic crisis is not a liquidity crisis but a health crisis. Global liquidity was not an issue —as central banks in advanced economies already had an accommodative monetary policy prior to the pandemic. However, global markets were volatile due to uncertainty about the spread of COVID-19 and the duration of the pandemic. Uncertainty still continues as the health crisis is not over yet. Therefore, all countries cannot let their guard down.

Despite the synchronization of the global pandemic crisis in the world, there is still heterogeneity in the depth of the impact of policy responses across countries and regions. Those cross-country differences, reflected by different structural characteristics and policy responses, may have shaped the growth impact differences. This paper compares different developing country regions across the world and finds that Sub-Saharan Africa may appear to have suffered a lesser blow from the pandemic than other developing regions. For instance, the median decline in 2020 growth across Sub-Saharan African countries (5.4 percent) is smaller than that of East Asia and the Pacific (6 percent), the Middle East and North Africa (6.9 percent), Eastern Europe and Central Asia (7.6 percent), and Latin America and the Caribbean (7.7 percent).

The COVID-19 shock that has hit the world economy and resounded throughout nations is the combination of demand and supply shocks, which tend to covary. Theoretically, the COVID-19 shock has both aggregate supply and aggregate demand implications.<sup>1</sup> From the supply side, the virus can affect workers’ participation in economic activities and then reduce the labor supply. However, the reduction in labor supply goes beyond the number of infected people as a result of strict lockdown measures (such as travel bans, workplace and school closings, and so on). From the demand side, individuals going to the market to purchase goods are exposed to the virus. the virus exposes individuals who purchase goods to infection. Therefore, private consumption declines. The access to goods is even more restricted as stores shut down or operate at reduced hours. At the same time, the uncertainty about the duration and depth of the virus may delay the spending of consumers and firms (Knightian uncertainty).<sup>2</sup> The lockdown measures of the COVID-19 pandemic led to the temporary closure or slowdown in operations of many factories and businesses. Consequently, these operations demanded fewer inputs, including less energy and reduced cargo shipping. In turn, the demand for energy, such as LNG used in shipping, also decreased.<sup>3</sup> The decreased demand for energy (i.e. oil) had an impact

> 1 See Guerrieri, Lorenzoni, Straub and Werning (2020).

> 2 Knightian uncertainty refers to the absence of any quantifiable knowledge about the occurrence of an event. Agents cannot have the information needed to set the likelihood of such event.  In the presence of Knightian uncertainty, economic agents keep in their portfolio their safest assets and defer future consumption and investment plans.

> 3 Restrictions on domestic and international travel also added to the lower demand for energy commodities.

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