 We described the 2020 crisis as the great lockdown. The containment measures that have been put in place are generating the scale of contraction and activity that are just historical numbers, incredible. Welcome to World Versus Virus, a podcast from the World Economic Forum that aims to make sense of the COVID-19 outbreak. This week we talked to the chief economist of the International Monetary Fund, Gita Gopinath. Nature strikes in ways that we cannot imagine and we've seen one and climate change could be even worse and so we have to prepare for that. Gita Gopinath tells us how the great lockdown will hit countries both rich and poor and what is the future for our globalised world? The world has benefited tremendously, if not perfectly, from globalisation. At this stage, to move back into a very protectionist stance, it's just going to make it that much more difficult. Also on the programme, we find out what business leaders see as the biggest risk from COVID-19 and how the pandemic has changed their outlook in just a few months. There's concerns about a prolonged global recession. This is not something we were talking about back in January. There's a number of these sort of economic or socio-economic concerns that have really risen to the top. World Economic Forum managing director, Sadia Zahidi, tells us about the COVID-19 risks outlook, a wide-ranging survey of opinions published this week. We asked leaders to look at the next 18 months and I think in the current context, 18 months even is a fairly long timeframe. Subscribe to World Versus Virus on Apple, SoundCloud, Spotify or wherever you get your podcasts. I'm Robin Pomaroy and this is World Versus Virus. She's one of the world's most influential economists, so we wanted to ask her to gop in earth where the global economy is headed now after what she's called the Great Lockdown. She spoke to my colleague Max Hall, who started by asking her how the current crisis is different from the financial crash of 2008. This started out as a health crisis. It's led to an economic crisis. And we hear a lot of experts saying it's completely unlike the 2008 crisis, which started in the financial sector. The response back then was emergency liquidity. Given that now the cause is so different, what should our response be? And at what point, if at all, can you see economies getting back to normal again? You're right. This is a very different crisis. I mean, we say this is a crisis like no other. And what it means is that the policies obviously will be very different this time around. Very glaringly, this time around, the number one policy has to be with regard to health, because this is a health crisis, which means that governments have to spend on ensuring that they have enough health facilities, that there is enough medical equipment, testing, contact tracing. So these are kinds of things that has not been initial in previous recessions. And this is going to be number one. This is needed not just for mitigating the crisis, mitigating the health problem, but also for ensuring a sound recovery once we come out of this health crisis. So that's one big difference. The second big difference is the speed and scale with which this crisis is leading to job losses is something that we have not seen before, which means that policies have to be very targeted in helping firms and workers that are directly impacted by the lockdowns that countries are putting in. I mean, we call this the great lockdown. I mean, we describe the 2020 crisis as the great lockdown, because if you look around the world, the containment measures that have been put in place, which are needed to deal with the health crisis are generating the scale of contraction and activity that are just historical numbers. It's incredible. And the collapse in consumption that we have seen in terms of the data coming in is just really at record highs. So this is why this is a different crisis. Now, of course, there's a financial aspect to it. And you're seeing a lot of support coming from central banks around the world to support financial markets. But again, the crucial role here is to ensure that households and firms can get back on their feet as quickly as possible. And that we can return to more normal activity once the health problems are more under control. I also want to ask you about the debt crisis. So people are talking about the coming pandemic debt crisis. Which economies do you think will be most affected? Is it emerging economies? Is it Europe? Is it the US? How do you see this? And how do you see this crisis playing out? I mean, elevated debt levels are a problem. I mean, coming into this crisis, we had, I would say, about 15 countries that we would say were already in debt distress. So about 40% of low-income countries were either already in debt distress or in high levels of high risk of being in debt distress. So that was what countries came into this crisis with already. And now we have, of course, the additional spending needs that are required. I mean, these are critical spending needs. This cannot be postponed. Governments have to spend on health and on livelihoods of people. And that is necessary. So that requires further spending. And that has implications for debt levels. So I would say that there are two kinds of issues we need to think about with respect to the debt problem. One is countries that are already in debt distress with very high levels of debt that are not able to borrow at reasonable terms on international markets. For these countries, the approach has to be to provide concessional financing, for the poorer countries to provide debt service relief. And at the IMF, we are doing both of those. We have rapid lending facilities to countries. We've doubled the access limits to that. We have about actually over 100 countries that have approached us for rapid financing needs. Secondly, we're also providing forest member nations a debt service relief on the debt that's owed to the IMF for the next, till the end of this year, for about six months. And I suspect that this will have to be a discussion that continues going forward. I suspect there will be countries that will need this more. We thought there was a G20 effort to also, for other official creditors, to provide debt relief. And that is very welcome and that's progressing. But I suspect more will be needed in the following years, both in terms of the time scale and in the nature of the debt relief that's being provided. Then of course, there's a second bucket of countries where there is no debt crisis at this point. We need to make sure that they are received the right amount of liquidity that they need to prevent them being pushed into a solvency problem, which is that they should be able to borrow at reasonable rates on market. Now, a lot of interventions that central banks have done, I mean, for instance, the US Fed in terms of their liquidity measures, I think has actually helped calm the market some for some of these countries. But that's not guaranteed in the coming years. And so liquidity facilities will be needed. And that again, there the IMF is playing a role. We just put in place a new short term liquidity line for countries. So I would say there's a solvency issue, there's the liquidity issues and both of these need to be addressed, not just now, but in the next many months to ensure that there is not a full blown debt crisis. So that's the response over the next few months. How do you see things panning out after say six months time? In 12 months time, in 18 months time and what should our response be? Well, I mean, in six months time, it looks like, you know, for many countries the health problems will still be there. You know, there is no medical solution yet. The prospect of a vaccine are there, but the best case scenario is we're talking about another from now on would maybe another, you know, 10 months or so or maybe the earliest end of the year that there could be a candidate vaccine. So for the next six months, I think we're in this phase for a lot of countries what we call phase one where there will be containment measures. And then there will also be several countries in phase two which are reopening their economies, but without a full medical cure, they will need to continue to support their economies. And you know, there's these and they might be what we call stop and start measures in terms of lockdowns. So if your question is, okay, once you come out, say maybe we get to phase three where we have the vaccine and our countries are dealing with the more normal kinds of problems that they face. And we have very elevated debt levels, how our country is going to deal with that. Again, now there, it depends on the country. So what is quite likely is that interest rates will stay low for very long, very low for very long. That obviously helps a certain countries, advanced economies especially, to roll over their debts at very low rates. And once we start recovery and growth, that should help bring down the debt levels. For other countries, especially the poorer nations, I think that debt restructuring, debt relief will have to continue to be done. And therefore, I would say also for countries, they have to find ways of raising revenues and progressive taxation could be one form of it. We talked about solidarity tax that may be needed in some countries. So again, it varies across countries, but this will be an issue the countries will have to deal with because it will be one of the big legacies of this crisis. What advice are you giving out to leaders on what to do with their economies? So again, we think of this crisis in three phases. The phase one is what's the strict lockdown, the strong containment measures. And there are actually many countries that are still most countries, I would say are still in that stage. Then there is phase two, where you have countries reopening because they've had more success with containing the spread of the virus. But this second phase is going to be very nonlinear in the following sense that, in the absence of a medical solution, you might see a resurgence of cases. You might need to reimpose measures on that. And then there's a third phase when we're past it and you're in the full recovery phase. And the advice niche phase is very different. In the first phase, the advice was, you have to do whatever it takes. You have to obviously address the health problems, spend on that. You have to ensure that firms and workers are able to survive this crisis and be quite generous in who you help. We don't broaden the scope of unemployment insurance that you provide. Now, in the second phase, I think the questions start coming up, of course, is that you can't do this on an unlimited basis. And a decision really will have to be made about how many firms can you actually protect going forward and how many would fail? And the reason we think about that is because some sectors might see a very permanent shift in demand. So any travel related industries, international tourism, and these can take a quite large hit, or very large entertainment activities that require big public access. These can take a very large hit. So then we enter a phase that you cannot support everybody. And you have to think of which ones that are more systemically important, strategically important. And for the other ones, the smaller, for the other firms, you would have to let them go into bankruptcy, but then figure out a way of how they can come back very quickly when things resume, assuming there's enough demand for them. So there are all these different phases of the crisis and the advice is very different. Despite all the uncertainty that exists, I think what we have learned is that there's one very good set of things that you can do which helps every economy at every stage. And that is testing, contact tracing, ensuring you have very good medical facilities, very good communication of how the health situation is evolving in your countries. That we have seen, if you look at which countries are having greater success in recovering, that is a number one factor. The second factor is countries that are putting in substantial fiscal measures to help their households and their workers and their firms. There was also other ones where we are seeing a recovery coming back up. So those are two big blocks. I think an important next step what's needed is as medical solutions are available and vaccines get discovered, that they produced at sufficient scale that they can be made available to everybody in the world as fast as humanly possible. And that is another big initiative that's needed. So if people are not earning, they're not spending, they're not economically active, is there a point in economies at which essentially the money runs out? I guess what I'm asking, what's the tipping point and what worries you as an economist? So if there is such a collapse in activity where nothing is getting produced and nothing is getting, there's no income and people aren't consuming, then of course that is a tragic outcome for any economy. But I don't think we are anywhere close to that. We are seeing a rapid collapse in economic activity. So we have seen, because of the great lockdown, we are seeing a big drop in production everywhere in the world. We have seen a significant collapse in consumption but a big part of that just is a reflection that people aren't going to retail stores and they're not going to restaurants just because the rules don't let them do that. So there is an important aspect of that too. But the whole point of policy at this point is that the factors of production, as we say in economics, what does it take for an economy in terms of the health of an economy in terms of the strength of an economy? What are the things that matter? What matters are the people, the human capital that's involved there, the physical capital in terms of the infrastructure that's built and how productively both these inputs are used. There is nothing that's changed with human capital. I mean, we still have the same level of human capital that people have before the crisis. There is tremendous physical infrastructure. There's a lot of physical capital that still is there to be used. So the policies are just about making sure that we can restart as quickly as possible. I think the scenario that we should expect is that all of these, the human capital, the physical capital can be used to bring economic activity back to where they were. But the fundamentals of what drives an economy remain. They have not disappeared. I'd like to ask you a little bit about how we value the state, how we value public services, how we value the private sector. How is this crisis showing the value of the state of public services of the private sector? I mean, we talk, for example, about essential workers and we use the words essential. Should we change the way we talk, the way we make policies about what's essential for our economies? Well, I mean, firstly, you're absolutely right that in dealing with this crisis on the frontline are the nurses and the doctors and the first responders who are doing an incredible job to maintain lives, to make sure that people feel that they can get the healthcare that they will need. And so just kudos to them. And I think every country has to be very, very thankful to all of these professionals. And not just in terms of words, but I would also say in terms of providing them policy packages that can support them. Secondly, I think it is what this crisis has made very clear that countries that have very strong healthcare systems, and especially those that are available to the vast majority of people are able to cope with this crisis much better. And that is something that I think should be a given even before this crisis, but this has made it even more apparent. Third, you have to find a way of providing a strong social safety net to people. Again, having systems in place where you can transfer resources to people in situations like this and the fastest way you can do that, using digital technology, those are the countries who are able to deal with this much better. So I think it's quite clear. Crisis of this kind, always you end up with much bigger role for the public sector. That's traditionally what happens. The same thing will happen now too. But I believe it is very important for countries to recognize that there are some essential services that need to be provided in terms of healthcare, in terms of education, in terms of good governance, in terms of social safety, that cannot be compromised on. And that has, that I believe this crisis has made that abundantly. I think what has also made it abundantly clear is the need for global cooperation, which is, I mean, this is a virus that doesn't respect borders. It crosses borders. And as long as it is in full strength in any part of the world, it's affecting everybody else. So this requires global cooperation to deal with it. Should stimulus packages, should they have strings attached? Should we, for example, be asking for conditions around climate resilience, lower emissions, public funding of healthcare, support for workers, support for things like bridging the digital divide? Should there be these conditions attached? Depending upon the phase of the crisis, the kinds of conditionalities you put can change. So for instance, now in most countries that are in phase one or phase two of the crisis, the goal is to make sure that workers and firms stay connected and stay matched because we don't want to see very disruptive job losses that make it difficult then to bring back workers onto jobs. And what that has implied is that, when governments have provided money to firms, they've put in conditions that if you want this loan to turn into a grant, you should prove to us that you've had a significant fraction of your workers continue to work for you. So that is a conditionality which helps the economy from a, from, you know, from everybody's perspective, it helps to have workers and firms matched. And that's a conditionality. I believe secondly, it's important that if you're going to provide money to any companies or banks that, you know, that money doesn't get turned around and sent to shareholders in the form of dividends or to share buybacks. And that is again, there are several countries that have put those kinds of conditionalities in there. So they have come with strings attached in a meaningful way. So the other question on climate, I think that is a very important issue. And it's quite clear that nature strikes in ways that we cannot imagine. And we've seen one and climate change could be even worse. And so we have to prepare for that. But the question is, how do we get the, to get to a much more greener economy, to get a much more planet friendly way of doing economic activity? What is the best measures that we can take? And I think what's clear here is that what is needed of course is to ramp up production of alternative forms of energy. That has started out, but you need a second push for that. Second to have infrastructure that's much more climate friendly. And in both these measures, the public sector can play a very big role. And we can see that as, especially when you get to a phase when countries are trying to stimulate the economies through doing more traditional public spending, public infrastructure spending that takes the form that are climate friendly would be very, very helpful in this regard. Once you have those in place, so you have alternatives to energy and you have these kinds of greener physical infrastructure then you can obviously put on top of that carbon pricing so that companies and firms internalize the impact of their activities on climate. So these are the things that need to be done. And I think this is a very good opportunity for all of this to happen because people are recognizing that nature can have a really dramatic impact on this case, your social health but also on your economic life. What do you think is the future of capitalism? What do you think is the future of globalization? I want to be optimistic and I want to say that the world will come together and we will come out of this eventually in a stronger form in terms of globalization, global cooperation in a better form for sure. But I am worried at this point. We entered this crisis already with weakening appetite for globalization and countries looking more inward. And this crisis has exhilarated that partly because of the nature of this crisis. As you've seen, there's been shutdowns on travel across borders, global supply chains have broken down because individual countries are locking down their firms. But of course, the bigger concern is that countries will then turn more protectionist, decide to move production more to their countries to put controls on exports. And that has been a big concern, especially with respect to medical supplies. So we are seeing that happening and that is a major concern. So I think we just have to remind ourselves that the world has benefited tremendously if not perfectly from globalization. It has created a lot more jobs. It has reduced cross-country inequality by raising incomes in poorer countries. This has reduced poverty in many countries in the world. Now it's not perfect, it needs to be fixed and much more needs to be done. But at this stage to move back into a very protectionist stance and drastically cut interactions with other countries in terms of goods and in terms of people will just make it very difficult to recover from this crisis. Because firms rely on global production to get the cheapest inputs. If that is not available to them, then they just can't bring back workers on to their factories. So it's just going to make it that much more difficult. The IMF's Gita Gopinath was speaking to my colleague Max Hall. Every year the World Economic Forum asked business leaders what they see as the greatest risks. The last edition published in January when COVID-19 still didn't have a name showed environmental concerns such as climate change and extreme weather events right at the top of risks for the coming decade. So how has the pandemic changed things? With partners Marshall McLennan and Zurich Insurance Group the forum has just published a report based on the views of some 350 decision makers on how they see the risks over the next 18 months. Forum managing director Saadia Zahidi told us what they'd found. Just in January when we asked business leaders to look at the biggest risks for the next 10 years climate change was very much up there. And I think we can see now with the Shorter Shorm Survey and with the current outlook that the concerns around climate and the green transition have fallen lower down the agenda. So there's risks of that nature and then there's sort of really specific risks that have risen to the top. So there's concerns about a prolonged global recession. This is not something we were talking about back in January. There are concerns about possibly another pandemic or certainly a resurgence of the current one. There are concerns about what this economic downturn means for supply chains and the knock-on effect that that might have on the movement of people and goods across borders. There are concerns about what some of the wave of bankruptcies that we're likely to see. I mean certainly what does that mean for job losses with the number of livelihoods that are being impacted but also what does that mean about the state of various industries in a year's time? Are we likely to see huge concentration of just the largest firms surviving and a lot of the small and medium-sized players disappearing? So there's a number of these sort of economic or socioeconomic concerns that have really risen to the top. We ask leaders to look at the next 18 months and I think in the current context, 18 months even is a fairly long timeframe especially if you look at the interconnections between different risks, right? So I think unsurprisingly, a lot of the economic risks are at the very top but then when you mix those economic risks with other factors that are also unfolding, that's where you're likely to see a new second order set of effects emerging. So for example, concerns about the rise of cyber crime comes out as one of the top risks. There's a lot of predictions that say that automation is likely to increase even more given what's just happened. And that of course also exposes the hastily adopted technologies that we're now all using. It exposes those to cyber crime. Sadia Zahidi was talking to my colleague, David Knowles. For more on the COVID-19 risks, out look go to weforum.org and search for the article. Several crises in one, what effects will COVID-19 have on the global risk landscape? By John Scott, head of sustainability risk at Zurich Insurance Group. And you can find the full risk report on the website too. Remember, you can find all our coverage of COVID-19 at weforum.org and follow us on Facebook, Instagram, LinkedIn, TikTok, YouTube and on Twitter using the handle at WEF. Thanks as always to Gareth Knowles for helping with this week's podcast. Please subscribe to receive it every week. Just search Will vs. Virus on Apple, SoundCloud, Spotify or wherever you get your podcasts. Thanks for listening and see you next week.