Spring’s LOCKDOWNS, which at their peak covered more than half the world’s population, triggered an all-powerful downturn. In April global economic output was 20% below the value that would otherwise have been achieved. As coronavirus cases have risen sharply again, rich countries are imposing another round of bans. France was imprisoned in November, Italy locked over Christmas, and England caught in a national lockdown on January 6th. Parts of Japan have entered a state of emergency. The situation in America, where local authorities rather than federal government are primarily responsible for home orders, is more complicated. However, a measure of the severity of the lockdown suggests that official restrictions there are now about as severe as they were in the spring.
The final round of lockdowns will hit the economy again – but maybe not that hard. Analysts at Bank Goldman Sachs have argued that in the UK’s case, “the sensitivity of economic activity to Covid-19 restrictions has decreased significantly since the initial lockdown”. In a study published January 8, HSBC, another bank, found that German industrial production “extended its recovery into November, undeterred by the renewed lockdown”. The December employment report, released on the same day, showed that employment fell for the first time since April – a depressing result when millions of people are still unemployed. Other high-frequency economic indicators, for example for consumer spending, are better positioned than in spring.
It will be some time before official GDP numbers confirm the rich world’s growing resilience to lockdowns. In a recent article, Nicolas Woloszko of the OECD, a rich country think tank, uses Google search data to compile a weekly estimate of GDP for large economies. In April they were around 80% full. Now they are running at over 90% (see graphic). Three main factors explain the improvement: less public fear; better calibrated government policy; and customization by business.
First, take away fear. In March and April, the coronavirus was an unknown quantity and many people responded by barricading themselves in their homes. Analysis of a poll by YouGov shows that as of April, more than 60% of respondents in rich countries were concerned about contracting the virus. However, a better understanding of what they can do to avoid illness and possibly fatigue means that people may now be ready to do more.
The proportion of people expressing concerns about catching Covid-19 declined to around 50% in November. Data from Google suggests that in many countries people are moving around more in public spaces than they were when the pandemic began. Sweden is one of the few places where mobility has fallen below spring levels. On the other hand, government restrictions have become much tougher. That has prompted some health officials to pull their hair out. The “current lockdown hasn’t affected mobility (and likely contacts) nearly as much as it did … in March,” said a December presentation by scientists in Ontario. British and American newspapers use the words “illegal rave” five times as often as in the spring.
Greater willingness to defy government orders is likely to worsen the spread of the virus, regardless of its economic benefits. The second factor that explains economies’ resilience this time around, the calibration of government policies, is less of a compromise, however. The officials have found which lockdown measures have the lowest economic cost. Hence, there is less appetite for school closings now than there was in the spring, but more appetite for guidelines on wearing masks and testing international arrivals, neither of which brings much trouble with anyone. Many followed the example of Germany, where many construction sites were allowed to remain open during the first wave. France continued production; Production in this sector barely decreased in November and grew in December.
The third reason for resilience relates to corporate adaptation. The sudden switch to remote working came as a shock to many of those who normally work in an office, like old computers and not much more. Since then, companies have invested to become more productive even under lockdown. The UK imported £ 4.7 billion (US $ 6 billion) of laptops from March to October, 20% more than the same period in 2019. A recent paper by Nick Bloom of Stanford University and colleagues analyzes American patent applications Noting that the pandemic has “The direction of innovation has shifted towards new technologies that support video conferencing and teleworking [and] Remote interactivity ”. There was undoubtedly also some level of learning from people becoming more comfortable with technologies like Slack.
Consumer-centric companies have done more to deal with this. New York’s best jazz clubs now have live streams straight to living rooms. While on a farm in the east of England, your correspondent bought a meal at Gujarati Rasoi, an Indian food stand in London 92 miles away that, like many restaurants, offers nationwide delivery. In the UK, the proportion of companies open for business at the end of last year was no less than it was in the summer when restrictions were much lower, according to official figures. This is not the case for small businesses in America, but a larger proportion remains open than last spring.
This resilience of the economy in the face of the recent wave of lockdowns has several implications. When the virus first spread, governments wanted to freeze the economy. However, over time it became clear that activities have adapted to the shock of the pandemic. This means governments will have to provide less fiscal support – which is exactly their plan for 2021.
Also, since fewer resources are wasted on this final round of locks, it should cause fewer scars. This would allow production to ramp up faster once the restrictions are lifted. Analysts at Bank Morgan Stanley expect US GDP to return to its pre-pandemic trend by the end of this year. Many could still thwart this forecast. Whatever happens, the economy that has gotten into the pandemic will look very different from the one it is leaving behind.