Slow easing of covid-19 lockdowns might benefit the global economy

Slower removal of covid-19 lockdown restrictions might benefit the global supply chain in the long run, rather than lifting lockdown restrictions quickly and then having to reinstate new lockdowns, according to a new modelling study by Professor Klaus Hubacek of the University of Groningen and co-authors from University College London and Tsinghua University. Their findings were published on 03 June 2020 in the scientific journal Nature Human Behaviour.

Shutting down the economy almost completely and ordering non-essential workers to stay home was not a well-thought-out response, but a desperate measure for a desperate time. These measures have slowed down the pandemic, but at a terrible price. As governments rushed to stop the spread of covid-19 the pandemic-related economic losses are becoming clear.

The study found that the duration of covid-19-related lockdown measures has had a greater impact on global supply chains than the severely of restrictions. Global supply chains are the backbone for the global production and distribution of goods and services. According to Hubacek, the length of lockdown matters more to economies than their severity, as shorter lockdowns cause less disruption to regional and global supply chains, and businesses can absorb the shock of a brief lockdown better by relying on reserves and stocks. The research modelled the economic impact of covid-19 lockdowns on global supply chains, by using an economic disaster model to measure the short-term effect of different covid-19 measures on global supply chains, and to model how pandemic-related economic losses will be allocated alongside supply chains.

As governments seek to re-open and unlock their economies, the research suggests that lifting measures too quickly and having to reinstate lockdowns will damage the global economy more than slowly easing restrictions that could eradicate the disease and generates smaller losses. Thus, according to Hubacek, mitigating the economic impact of covid-19 requires a globally concerted effort.

The authors modelled 39 individual scenarios based on four sets of containment scenarios, based on the geographical spread of the virus, duration and strictness of lockdown measures, and the easing of the lockdowns. In a scenario in which a two-month lockdown of 80% strictness had been imposed only in China, they found that the supply chain effect would have been 3.5% of global GDP. Another scenario in which Europe and the United States placed containment measures, the global supply chains effects increase almost fourfold to 12.6%. However, if this scenario had been enforced globally, the supply chain effect would have increased to 26.8% of global GDP. Increasing the duration of an 80% lockdown from 2 to 4 months increases the global economic losses from $20 trillion to $22.7 trillion.

According to Hubacek, the economic impact of Covid-19 lockdowns goes beyond those countries directly affected by Covid-19 and will hit economies and sectors in ways that are not always intuitive. Much effort and money will now be spent on kick-starting economies to bring them back to a pre-Covid-19 state. This is the right time to think about restructuring the economy to achieve goals such as slowing climate change, says Hubacek.

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