November 17, 2021

How COVID-19 has impacted economic growth

  • The secular growth of services has been a significant drag on aggregate productivity growth – but the shock of COVID has raised hopes for reversing that.
  • Raising service sector productivity growth could unleash enormous potential, but the hurdles remain significant – more modest expectations should be maintained.
  • Overstating the pandemic’s effect on the economy could carry costs that would vary by stakeholder.

A boost to productivity growth is a commonly cited macroeconomic silver lining of the COVID-19 crisis. After lockdowns and social distancing forced consumers and firms to adapt to digital channels, even for services a credible narrative of a productivity tailwind has emerged.

When such a structural tailwind is considered alongside the cyclical productivity gains associated with tight labour markets (periods in which firms…

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