Due to the rapid spread of COVID-19 across the world, many governments implemented lockdown and social distancing measures to keep people safe from the virus. There are now roughly three billion people worldwide that are under some form of lockdown. Many countries have also recommended restricted movement for some or all of their citizens. Some even ordered restrictions or bans on flights from different nations.
According to BBC, an operational business division of the British Broadcasting Corporation responsible for the gathering and broadcasting of news and current affairs, the number of commercial flights last March decreased by more than a quarter across the world. More and more countries during the final week of last month introduced travel restrictions to try to contain the virus, resulting in a 63% traffic decline from the same period last year.
Heathrow, one of the busiest airports in the world serving about 80 million passengers per year, recorded more than 1,000 fewer flights compared to an equivalent day in 2019. At the same time, travel within major cities across the world has been restricted. These are just some of the “new normal” situations many people have to deal with. While it’s still early to make conclusions, several implications of these lockdowns are now coming to light.
Lockdowns Will Cripple the Economy
As governments enforced lockdowns and other restrictions, restaurants and bars, shops, schools, and gyms have been required to close down. Citizens are strongly encouraged to stay home to avoid catching or spreading COVID-19. Experts say that this can greatly help break the chain of transmission, giving more vulnerable populations a fighting chance of surviving this pandemic.
According to the World Economic Forum, an independent international organization committed to improving the state of the world by engaging business, political, academic, and other leaders of society to shape global, regional, and industry agendas, the purpose of a lockdown is to reduce the number of people each confirmed case infects. A recent study conducted by the Imperial College London COVID-19 Response Team said that there are two routes reduce transmission rates: mitigation and suppression.
However, the lockdowns have heavily affected people’s lives and livelihoods. Many businesses and companies are now closed, while a lot of people have been left jobless. Experts project global growth in 2020 to fall to -3%, a downgrade of 6.3% points from January 2020 projections. This makes these lockdowns the worst recession since the Great Depression, and far worse than the Global Financial Crisis. If this continues, experts projected that the level of economic activity in 2021 will remain below the level they had projected for 2021 before the virus hit.
A report from the International Monetary Fund (IMF) projected that the cumulative loss to global GDP over 2020 and 2021 from the pandemic could be around $9 trillion, which is greater than the combined economies of Japan and Germany. Both advanced economies and emerging market and developing economies are in recession for the first time. It is forecasted that growth in advanced economies for this year is at -6.1% while emerging market and developing economies are also projected to have negative growth rates of -1.0% in 2020 and -2.2%. Economist Gertjan Vlieghe, who sits on the Central Bank’s Monetary Policy Committee (MPC), recently said that the pandemic is dramatically hitting some sectors over others in ways never seen before.
"The economy’s potential is severely disrupted at the moment but, once the pandemic is over, and other things equal, in principle it should return approximately to the pre-virus trajectory,” he said.
Vlieghe explained that it appears that the world is experiencing an economic contraction that is faster and deeper than anything we have seen in the past century, or possibly several centuries. This is based on the early indicators about the economic impacts of the pandemic and on the experience in other countries that were hit somewhat earlier than the UK. “This is, therefore, a highly asymmetric shock, hitting some sectors in the economy drastically, while leaving other sectors financially little affected, and some even positively affected,” he added.
Economic Damage Without Lockdowns
Many people are now probably eager to end these lockdowns and go back to their normal lives. However, economists argue that ending lockdowns and reopening nonessential businesses will end up causing even more economic destruction than extending quarantines would. A recent study conducted by economists from the University of Cambridge and US Federal Reserve Board revealed that sending people back to work en masse would likely result in twice the economic downturn as an ongoing quarantine.
“As well as containing the loss of life, committing to long-term social distancing structured to keep core workers active can significantly smooth the economic costs of the disease,” Cambridge economist Giancarlo Corsetti said in a press release.
According to Phys.org, an internet news portal that provides the latest news on science, the researchers developed a model for the economic consequences of social distancing by combining macroeconomics with aspects of epidemiology. Ending lockdowns without a vaccine that would protect us from the virus would divide the working population into "core workers" and then everyone else. The findings suggest that the economy would shrink by 30% or more without lockdowns and social distancing, and by separating the core and non-core workers.
Reopening businesses early would also be destructive because it would likely cause a spike in coronavirus infections among workers who are forced to take shifts. “Without public health restrictions, the random spread of the disease will inevitably hit sectors and industries that are essential for the economy to run,” Corsetti said.
The researchers considered several lockdown policies to project how each scenario would impact the economy. The first scenario indicates lockdowns would last for eight months, where 5% of core workers and 40% of the rest of the working population would work from home, while 30% of non-working age people could also be kept at home under lockdown. They projected that the peak monthly economic contraction at any point in the lockdown would be halved to around 15%.
According to CNBC, the world leader in business news and real-time financial market coverage, the peak of the infected share of the population under this policy would drop from 40% to 15%. However, Corsetti said that even this level may still be "far too high" for health-care systems to cope with. "This milder lockdown scenario for eight months would be one in which we do not wait for the vaccine, but we hope for a form of herd immunity by exposing people very slowly to the disease," he said.