Monash researchers are mapping the global effects of different strategies used to contain and manage COVID-19. This is what they have found so far.
As COVID-19 infections and deaths multiplied and increased exponentially, authorities around the world responded with a set of measures such as lockdowns and strict border controls, severely limiting the movement of people within and between countries.
This led to severe economic effects that helped to translate a health crisis into a global economic crisis.
Professor Ranjan Ray from the Department of Economics at Monash Business School and co-author Dr Sanjesh Kumar produced a working paper for the Centre for Development Economics and Sustainability (CDES) COVID-19: Facts, Figures, Estimated Relationships and Analysis that reports how the pandemic impacted some economies more than others.
Professor Ray believes that the fact that all this happened when the global community is closely integrated explains the rapid spread of both types of shocks on a scale not seen before.
The paper has been peer-reviewed and will appear shortly in the Indian Economic Review.
Analysing the cost of COVID-19
“What makes COVID-19 so difficult to analyse is its idiosyncratic nature both with respect to where it strikes and when, the wide divergence in the various country experiences regarding the incidence of the disease and the deaths and considerable variety in the nature of the economic shocks triggered by the policy interventions to stem the spread of the disease,” Professor Ray says.
He believes this is partly related to sharp differences in the nature and timing of the policy responses, notably, the lockdown and shutting down large parts of the economy.
“As our study showed, generalised observations and policy inferences are impossible to make,” he says
“One of the few generalised observations that can be made, however, is that COVID-19 affected the elderly disproportionately more than the young, a feature that distinguishes it from the previous global pandemic, namely, the Spanish Flu that took place more than a century ago.”
The impact on both health and economy
The paper attempts an analysis of the health and economic aspects of COVID-19, based on publicly available data from a wide range of data sources.
The study considered the period till September 2020. As this piece was being prepared for Impact, India is going through a second wave that far exceeded that in the first wave in both the number of infections and fatalities related to COVID.
While the COVID-19 statistics were collected from the WHO website and the study uses the data as of 30 September 2020, the economic statistics were mostly collected from the economic outlooks provided in World Bank (2020), and the IMF (2020).
As they were completing the study, COVID-19, which had appeared to weaken in its intensity and spread across countries, was back in the USA and Europe with renewed vigour in what has been described as the ‘second wave’.
“What makes COVID-19 so challenging is that it combines health and economic shocks which makes it distinctive in relation to previous economic and financial crises such as the GFC or, still earlier, the Great Depression,” Professor Ray says.
“Our analysis is done keeping in mind the close interaction between the health and economic shocks.”
Did lockdowns work?
The paper provides mixed messages on the effectiveness of lockdowns in controlling COVID-19.
While several countries, especially in the East Asia and Pacific region, have used it quite effectively recording low infection rates going into lockdown and staying low after the lockdown, the two countries that were spectacular failures are Brazil and India.
India fared the worst, being below the radar of global infection numbers at the start of the lockdown, but recorded exponential increases during and after the lockdown to catch up with the most infected countries.
This has to do with the nature of the lockdowns in India and Brazil—while India imposed a lockdown without any notice or preparedness, Brazil left it quite late and also opened up quite early when the infection rate was still climbing.
The policy lesson is that prolonged lockdowns can become blunt instruments if they are not accompanied by an increase in testing rates, contact tracing, improvements in medical care and social awareness of the need for social distancing.
A clear road map is required both going into lockdown and exiting it. The positive experiences of Singapore, South Korea, Taiwan and Vietnam on lockdown are instructive.
Damage to growth
The study also produces clear evidence of the damage to growth rates due to extended lockdowns.
It works out the implications of the plunge in growth rates on the magnitude and the regional spread of global poverty.
The worst-hit regions are South Asia and Sub-Saharan Africa with these two regions accounting for nearly 9 in 10 people joining the ranks of the poor due to COVID-19.
“There is a dissonance in this picture with that reported later on the regional breakdown of COVID-19 infections and fatalities,” Professor Ray says.
“This is particularly true of Sub-Saharan Africa and South Asia which bear a greater share of the ‘COVID-19 poor’ than is suggested by their share of COVID-19 cases.”
The opposite is true of the more affluent North America and Europe and Central Asia. The reason lies in the greater vulnerability to poverty in Sub-Saharan Africa and South Asia.
“The health shocks in the affluent regions of North America and Europe get translated to large economic shocks in the poorer developing economies, with India being a prime example,” he says.
How stimulus programs made an impact
In contrast to lockdown, the evidence on the effectiveness of stimulus programs in avoiding recession and promoting growth in the middle of COVID-19 is unequivocal.
The effectiveness of stimulus program in putting cash at the hands of the poor is much greater in the case of emerging or developing economies than in the advanced economies.
For example, they found that a fiscal stimulus of around 15 per cent of GDP will wipe out any downward movement of growth rates to negative territory in the case of the developing economies.
“No developing economy records a fiscal stimulus of that magnitude. The relief packages in the majority of such economies are less than 5 per cent,” Professor Ray says.
“The corresponding requirement for avoiding negative growth rates in case of advanced economies is for a fiscal stimulus that is nearly 85 per cent of GDP.”
Since the former face serious liquidity constraints in launching large relief programs due to their limited access to international credit, Professor Ray says the lesson is for multilateral institutions such as the World Bank and the IMF to work out a coordinated strategy to declare immediate debt relief and provide additional liquidity to the poorer economies.
“The seriousness of the need for large relief programs is underlined by the large increase in the global pool of those living in ‘extreme poverty’, called ‘COVID-19 poor’, that we have estimated to be of the order of 53 million people in 2020,” he says
“The bulk of ‘COVID-19 poor’ reside in India to the order of 36 million people that is quite close to the figure of 40 million estimated by IMF (2020b) using a different methodology to ours.”
As India continues to struggle through a second wave, nearly 7 million cases have been reported up until now and Professor Ray believes this to be a significant underestimate.
He says that while it is still too early to work out the economic implications of the second wave in India, the earlier optimistic projections from 2020 will have to be downgraded.
Impact for the future
As more data becomes available with the passage of time, Professor Ray hopes to study the effect of the measures to contain the virus on the economy by putting in a time lag (which was not possible up to now).
“Since pandemic-induced recessions are so sector-specific unlike general recessions (with demand for travel and hotels collapsing, demand for medical services going sky-high in a pandemic), the efficacy of the stimulus will be very different depending on the content and nature of the stimulus,” Professor Ray says.
“To be able to capture this statistically can be exciting and important.”