Many countries around the world have enacted stringent containment measures and non-pharmaceutical interventions (NPIs) to halt the spread of the coronavirus (COVID-19) and limit the number of fatalities, in a bid to avoid overwhelming the medical system and to buy time while effective treatments and vaccines are developed.
Interventions have ranged from improved diagnostic testing and contact tracing, isolation and quarantine for infected people, and importantly, measures aimed at reducing mobility and creating social distancing (containment measures).
Evidence suggests that these measures have been effective in flattening the pandemic “curve” and significantly reducing the number of fatalities. In particular, they find that countries that have put in place stringent measures such as China and Italy, as well as early intervention, such as in New Zealand and Vietnam, may have reduced the number of confirmed cases and deaths by more than 90 percent relative to the underlying country-specific path in the absence of interventions.
However, while these measures have contributed to saving lives, and have therefore provided the foundation for stronger medium-term growth, they have led to unprecedented economic losses in the short term.
Quantifying these short-term economic effects and whether they vary across types of containment measures is of paramount importance for many policymakers around the world facing a short-term trade-off between normalising economic activity and minimising health risks.
The IMF produced a paper in August 2020, a synopsis of which is below.
The paper has four main goals.
The analysis was based on daily data on real-time containment measures as well as a unique database containing daily data on several indicators of economic activity: Nitrogen Dioxide (NO2) emissions (the main variable of interest); international and domestic flights; energy consumption; maritime trade; and retail mobility indices.
The results suggested that containment measures had, on average, a very large impact on economic activity—equivalent to a loss of about 15 percent in industrial production over the 30-day period following the implementation of the containment measure.
Using data provided by the IMF Policy Tracker which compiles discretionary fiscal and monetary measures implemented in response to COVID-19, the results suggested that macroeconomic stimulus deployed so far had been effective. The negative effect of containment measures being much larger—equivalent to a loss in industrial production of about 22 percent—in countries that have provided limited fiscal and monetary policy stimulus.
Preliminary evidence suggests that containment measures that are most effective in curbing infections (such as workplace closures, cancellations of 7 events, and stay-at-home requirements) are also costliest in economic terms. In contrast, restrictions on international travel are the least costly but still successful in lowering COVID-19 infections.
The results suggest that while the loosening of containment measures has sizeable effects on economic activity —equivalent to about a 7 percent increase in industrial production, its effect on economic activity is much smaller (in absolute value) than that of the tightening of containment measures.
