Covid-19 will permanently change the world's economy

Editor's Note: (This article was originally published in its entirety in the International Monetary Fund's summer 2020 issue of Finance & Development Magazine. Sergio Rebelo is a professor of international finance at the Kellogg School of Management at Northwestern University. The opinions expressed in this commentary are his own.)

Covid-19 will leave a lasting imprint on the world economy, causing permanent changes and teaching important lessons.

Virus screening is likely to become part of our life, just like security measures became ubiquitous after 9/11. It is important to invest in the infrastructure necessary to detect future viral outbreaks. This investment protects economies in case immunity to Covid-19 turns out to be temporary.

Many economies adopted versions of Germany's Kurzarbeit (short work) subsidy during the pandemic. This policy keeps workers employed at reduced hours and pay, with the government compensating some of the shortfall in wages. By keeping matches between firms and workers intact, the economy is better prepared for a quick recovery. It is important to improve the implementation of these policies and make them a permanent part of our economic recovery tool kit.

Remote work is likely to become more common. We had some evidence that working from home is at least as productive as working at the office. However, many companies were reluctant to embrace remote work. Now that many have tried it with good results, remote work might be here to stay.

The pandemic crisis has accelerated the pace of digital transformation, with further expansion in e-commerce and increases in the pace of adoption of telemedicine, videoconferencing, online teaching and fintech.

Companies with international supply chains are dealing with shortages and bottlenecks. We are likely to see many of these companies reshore some of their production. Unfortunately, this trend will not create many jobs because most of the production is likely to be automated.

Governments will be bigger after playing the role of insurer and investor of last resort during the crisis. Public debt will balloon, creating financial challenges around the world.

The most important lesson from the Covid-19 pandemic is the importance of working together on problems that affect the entire human race. We are much stronger united than divided.