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It was bound to happen. As new economic data and forecasts reveal the amount of destruction that coronavirus will leave in its wake, the pressure mounts on governments to ease the strict lockdowns they have imposed to fight the pandemic. While no one dares suggest that now is the time to end the restrictions, open the bars and start partying, policy makers face demands that they at least give an idea of when this will start happening, describe how they view the path back to normality, and tell us which criteria they will use to decide that it is time for our kids to go back to school and their parents to enjoy a good night out.
This is a difficult question for governments, because the truth is that there is no answer. Business leaders or lobbyists are warning that the cost of the lockdowns may well prove higher than the COVID-19 disease, but they have no idea what the disease would have cost in the absence of lockdowns. The rest is just stating the obvious: yes, governments have to weigh, constantly, the health of their citizens against the health of the economy.
Dramatic numbers revealed as the weeks go by add to the pressure. The International Monetary Fund on Tuesday estimated that the world economy would shrink by 3% this year, which would be “the worst” recession since the 1930s. The same day, the U.K.’s Office for Budget Responsibility estimated that output would fall 35% in the second quarter of the year — the height of the lockdown.
These were dramatic numbers and rightly made headlines, but they didn’t really tell us anything we didn’t know. The French statistics institute had previously estimated the cost of a lockdown at about 35% of output. Other economists or analysts had also published their own estimates, along the same lines.
But hanging on to precise numbers is wrong. We already knew the economic price of the virus would be gigantic. As for data, we’re reduced to ballparks, back-of-the-envelope calculations, rules of thumb…As UBS chief economist Paul Donovan wrote, (current) “economic data is either not timely, or timely and wildly unreliable.” There are good reasons to think the actual economic shock could be even worse than forecast.
The main difference with all recessions of modern history is that the current economic slowdown is being actively forced, from the top down, by governments all over the world. They are all grappling with different demographics, economies, public finances, and health-care situations. Some already think they can go ahead with easing — Denmark is reopening its schools. Others, such as France and the U.K., feel, on the contrary, that they must extend their lockdowns well into the month of May. There is no model for exiting. And hurrying for the sake of exiting could prove the worst possible economic choice.
