IADS comments 09/04/2020

It has become clear that coronavirus poses two threats: the first is a threat to health which the media have covered and they rightly continue to do so. As conditions evolve, so does advice on behaviour, and so do containment and lockdown measures. Much can and should be learnt from other countries (Wolf cited below suggests comparing Norway and Sweden). In general, measures are taken to "flatten the curve", in other words, to slow the spread of infections over time to help medical and health services cope with the crisis. Most people now acknowledge this - "we get it".

However, confinement and other measures have a direct impact on the economy

According to the OECD, "the implications for annual GDP growth will ultimately depend on many factors, including the magnitude and duration of national shutdowns, the extent of reduced demand for goods and services in other parts of the economy, and the speed at which significant fiscal and monetary support takes effect". It is estimated that for every month that large parts of the economy remain closed, annual growth might fall by 2 percentage points.

Increasingly, experts are talking about how the economy is also a public health concern, and the need for what Munich-based IFO has called a "risk-adapted strategy".

Martin Wolf of the Financial Times recommends that first, lockdowns must pay, that is they must allow us to live without them in the future. Second, we must minimise economic damage. And here, the focus must be on today, and not on high public debt and other burdens of the future.

The key is that the devastating economic impact has to be managed and that this involves trade-offs: some freedoms may have to be given up, and some governments will attempt to increase their grip. The essential ingredient for constructive measures to work is trust which, unfortunately, is in short supply at the moment, both in business and in politics.

See, among others, available on IADS website under C-19 Files:

-    Martin Wolf, We must focus our attention on the next steps, FT, 08/04/2020

-    Clemens Fuest, Martin Lohse, Making the fight against the coronavirus epidemic sustainable, IFO, 02/04/2020

-    Danielle Allen, The tech we need to end the pandemic and restart the economy, TED video, 06/04/2020

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