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Economic recovery will look a lot more 'W' shaped with new lockdowns

Surviving the journey to a COVID-19 vaccine

Coronavirus has thrown many challenges our way. To list a few very generic ones that apply globally:

  • Observing what's been happening in other countries and considering how to prepare

  • Dealing with the initial surge of cases and determining the appropriate action

  • Population lockdown as people stay at home

  • The economic crash with spending and production falling catastrophically

  • The medical challenge of creating a vaccine super fast

Many countries muddled/are muddling their way through these challenges, unless you are somewhere like Taiwan that kicked COVID-19's ass.

The bit that went missing as people got way too excited about a "V" or "U" shaped recovery is how we would get through the middle bit. The two years or so after lockdowns without a vaccine where COVID-19 continues to spread with the risk of a large outbreak. A lot of the early focus was on the immediate response but increasingly managing through this middle bit is proving to be a bigger societal challenge. To an extent, this comes back to the resilience and stimulus questions, but it's bigger than that. Establishing a system that can handle an outbreak and keep economies open is essential.

We weren't ready for this middle bit

Economically coronavirus was at its worst on April 2nd. With lockdowns in place, global GDP was 1/5th lower than usual. That's horrendous. Governments responded with stimulus measures to keep the economy afloat. These measures typically rely on the economy operating more normally than it is. Realistically increased government spending at this stage probably isn't as impactful as money isn't flowing around the economy as fast (people are spending less). Avoiding future lockdowns is critical to reduce economic suffering.

If COVID-19 returns with vehemence in countries that successfully flattened the curve, what measures are governments going to rely on? Living with ongoing lockdowns doesn't seem viable reflecting the cost and mental health concerns. The Reserve Bank of New Zealand estimated that alert level four shutdown 37% of the economy. We are already seeing the return of lockdowns in Israel and Melbourne, Australia. Auckland went back to alert level three recently with non-essential workers required to stay home. This is the double-hit in action. We are still at least a year away from having a widely available vaccine. Alternatives to lockdowns pre-vaccine are necessary to avoid more suffering.

So we don't have to cancel Christmas this year, countries need to build the capability to avoid the need for strict lockdowns. The capability to handle ongoing transmission and the occasional outbreak. That's imperative from a health perspective, but also to make sure there is an economy left when we come out of this mess.

Governments trying to get through COVID-19

What initiatives support economic recovery while ensuring we are safe?

From an economic perspective getting through COVID-19 is pretty tricky. Governments are weighing up their finances and considering how much debt is affordable. What's is the right response? Economic measures need to build social cohesion so we are more capable of handling this 'middle bit'. If people are worried about their wellbeing it becomes very hard to think sensibly about population health measures.

In terms of broad societal initiatives, top of the list is a Universal Basic Income (UBI) or at least a Guaranteed Minimum Income (GMI) to make sure people can keep spending and consuming even if they lose their jobs. Inevitably this would be debt-funded but a further downturn from reduced consumption would be too dramatic. It is imperative given the number of people who lost their jobs.

There is also a need for targeted economic initiatives for those who have been hit hardest:

  • Ongoing welfare support through direct payments or discounts for necessities (e.g. energy) can be considered and are closely related to a UBI in that they support consumption for the most vulnerable.

  • Support for service workers (e.g. entertainment, hospitality) is critical as services are returning much slower than demand for goods due to the face-to-face nature of the product. These workers need specific support to ensure we have a robust service sector post-COVID-19. Retail has largely returned to pre-COVID-19 levels, whether that continues remains to be seen. There are distributional effects to consider here, bricks and mortar retail has been hit harder than online.

  • Vouchers that give people a discount or free money for traveling domestically are a great way to support the return of domestic tourism. Domestic tourism will probably return much quicker than international tourism.

  • Distance learning programmes that help students catch up on what they have missed out on during lockdowns should also be considered.

That is just scratching the surface. Schemes that usefully support those hit hardest by lockdown measures are worth considering.

From a health perspective, many initiatives are already in place, or at least in development, but there is room for improvement. Initiatives include:

  • Extensive contact tracing capability that can handle a major outbreak with thousands of cases per million. That means having well-trained people on standby to track and trace in case of an outbreak and having citizens themselves track where they have been and who they are seeing. While that sounds expensive, shutting down the economy is way more costly and there are plenty of people under or unemployed who could use these jobs.

  • A less invasive test that people feel comfortable taking. The nasal swab test sounds horrible with a long swab getting inserted up the nose. That's not an excuse not to get a test but it is dam offputting.

  • Limiting the number of people in the workplace to facilitate social distancing. That could look like businesses mandating that only 50% of their people can be in the office each day. Initiatives like this are pretty important in CBDs.

  • Social distancing measures that are less strict than lockdown so life can go back to 'normal'. One-meter rules or restricting the size of events fits in here.

There are a bunch of others like quarantine measures, but these ones are top of mind. Measures pre-vaccine must be sustainable as asking too much of people will reduce compliance. Of course, the implementation of health measures to avoid lockdowns is not just a government responsibility. It requires the population to play ball and abide by the rules to avoid the bigger threat of COVID-19. If there is a large outbreak, governments may have to lockdown. Perhaps wearing masks isn't so bad in that context.

Establishing this line of defense is critical to ensure the next one to two years pre-vaccine is sustainable. The cost and effort are absolutely worth it given the exorbitant cost of lockdown measures and the importance of giving people back some sort of 'normal' life.


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