From an economic standpoint: the more efficient the containment measures to slow down the epidemic, the greater the economic pain they inflict.

COVID-19 Economic and Epidemiological Impact – Analysed in just a few gobbets for time-starved, over-solicited decision-makers

 

  • Covid-19 now affects more than 100 countries – in most of these the virus is spreading at an exponential rate as a result of community contagion. China appears to have contained the spread of the virus. The epicentre of the pandemic is now in Europe.
  • China has brought the epidemic under control by using a “social nuclear weapon” (in the words of Nicholas Christakis, a Yale professor of Social & Natural Science) in the form of “closed-off management” measures enforced with an iron-fisted hand. This astonishingly successful response was only made possible by authoritarianism, and as such is almost non-replicable elsewhere and particularly in liberal democracies.
  • The lessons from China are the following: it took about two months to control the coronavirus – Wuhan was locked down on January 23rd and yesterday 17 new cases were reported in the Hubei region (of which Wuhan is the capital) and 2 in the rest of the country. The tougher the containment measures and the stricter the surveillance (mainly through technology), the greater the likelihood that the spread of the epidemic will slow (before eventually reversing).
  • The drastic measures being implemented in Italy (the entire country is now in quarantine) are destined to flatten the curve of the epidemic; i.e. the speed at which the outbreak evolves. It doesn’t necessarily reduce the number of cases, but it slows down the rate of the epidemic in an attempt to prevent the health care system becoming overwhelmed. In the rich north of Italy that has a “good” health system by European standards, many people will soon be dying from Covid- 19 because there won’t be enough hospital beds or ventilators to keep them alive. Many countries around the world will soon face the same problem.
  • In light of the above, the current policy trade-off – measures destined to flatten the curve and save lives prevailing over economic considerations – is inevitable and informed by the following: so far Covid-19 has a reproduction rate (still uncertain) considerably higher than for the seasonal flu (2.8 versus 1.3) and a lethality rate that is roughly 20 times higher (between 1 and 3 versus 0.1). But from an economic standpoint: the more efficient the containment measures to slow down the epidemic, the greater the economic pain they inflict.
  • The post-epidemic economic consequences remain uncertain but they are potentially disastrous – far more painful than the sell-side and strategic consultants would have us believe. Domestic and international supply chains are being disrupted while aggregate demand is plunging. GDP is dramatically slowing in systemically important economies, and their output is entering a phase of material decline. A global recession is now the most likely outcome and the only way to prevent a depression is to have a globally co-ordinated fiscal and monetary policy. This will come because the pandemic is the excuse required to launch a programme of fiscal expansion.
  • Scientists are still debating whether there is seasonality-effect attached to Covid-19. If the virus is vulnerable to warmer temperatures (still a big “if”), this means that the spread will start decelerating soon in the northern hemisphere and will do the opposite in the southern hemisphere.