Slow easing of lockdowns may be better for global economy

Date:
June 3, 2020
Source:
University College London
Summary:
A cautious approach to easing lockdown restrictions that reduces
the risk of later lockdowns may be better for the global supply
chain in the long run, according to a new modelling study.



FULL STORY ==========================================================================
A cautious approach to easing lockdown restrictions that reduces the
risk of later lockdowns may be better for the global supply chain in
the long run, according to a new modelling study led by UCL and Tsinghua University.


==========================================================================
The paper, published today in Nature Human Behaviour, is the first peer- reviewed study to comprehensively assess potential global supply chain
effects of Covid-19 lockdowns, modelling the impact of lockdowns on 140 countries, including countries not directly affected by Covid-19.

The study found that stricter lockdowns imposed earlier -- such as the
two- month lockdown imposed in China -- are economically preferable to
more moderate lockdowns imposed for four or six months, as duration of
lockdown matters more to economies than their severity. This is because businesses can absorb the shock of a brief lockdown better by relying on reserves and because shorter lockdowns cause less disruption to regional
and global supply chains.

Researchers also found that countries not directly affected by Covid-19
may nonetheless experience large losses of more than 20% of their GDP
due to falls in consumer demand and bottlenecks in supply chains.

Particularly at risk are open or highly specialised economies, such as Caribbean countries that rely on tourism and Central Asian countries such
as Kazakhstan that rely on energy exports. Also vulnerable are globalised industries that rely on difficult-to-replace suppliers, such as automobile manufacturing, where production is estimated to fall by up to half.

Lead author Professor Dabo Guan (UCL Bartlett School of Construction &
Project Management and Tsinghua University) said: "Our study shows the
ripple effects caused by lockdowns along global supply chains, with
countries not directly affected by Covid-19 still experiencing heavy
economic losses.



========================================================================== "While predicting the true cost of lockdowns is not possible at this
stage, our research suggests that shorter, stricter lockdowns minimise
the impact on supply chains, while gradually easing restrictions over
the course of a year may also be less disruptive than a swift lifting of restrictions followed by another lockdown." The researchers estimated
that gradually easing lockdown measures over 12 months would minimise
supply chain impacts compared to lifting restrictions more quickly, over
two months, and then introducing a second round of lockdowns in January
next year, which they estimated would increase the cost by one- third.

Co-author Professor Steven Davis (University of California, Irvine) said:
"Our analysis quantifies the global economic benefits of robust public
health responses and suggests that economic justifications to re-open businesses could backfire if they result in another round of lockdowns." Looking ahead to a potential second wave, the researchers found that a
strict, globally co-ordinated lockdown implemented for two months would
be less economically costly than lockdowns happening in different parts
of the world at different times -- risking a potential economic loss
to global supply chains by 50% rather than 60%. This is because the
economic cost of a lockdown goes beyond national borders and a shorter,
one-off shock is easier to absorb.

Professor Guan said: "Companies will survive the supply chain failures
that lockdowns cause by relying on reserves of stock or finding new
suppliers. If a second shock hits, reserves may be low and supply
chains only recently repaired -- making a new break much more costly."
If recurrent global lockdowns occur, New Zealand's food services sector
and Jamaica's tourism industry would face estimated productivity losses
of about 90%, while China's electronics business and Iran's oil industry
would face productivity losses of about two thirds.



==========================================================================
The cost to the UK economy, meanwhile, would rise from a potential supply
chain loss of 38% (one lockdown gradually eased over 12 months) to 57% (recurrent global lockdowns happening at different times in different countries).

In the United States, the cost to the financial sector would nearly
double if a second global lockdown occurs, with potential supply chain
loss rising from 33% (one lockdown gradually eased over 12 months) to 57% (recurrent global lockdowns happening at different times in different countries).

The most important factor affecting the global economic cost of
lockdowns, the study found, was the number of countries implementing
them, highlighting the importance to the global economy of one country containing an epidemic.

Co-author Professor D'Maris Coffman (UCL Bartlett School of Construction & Project Management) said: "Just as individuals staying at home protect
others as well as themselves, so countries imposing strict lockdowns
provide a public good to other countries.

"In preparing for the next pandemic, a global facility, in all likelihood administered by the IMF, could ensure that the costs of containing an
outbreak are not borne by one country alone. This would remove some
of the disincentives to early action and provide enormous health and
economic benefits over the long term." The paper used a "disaster
footprint" economic model to quantify the direct costs of lockdowns in
terms of labour reduction as well as the cascading effects of loss of
labour on the supply chain, simulating how constraints to output affect upstream suppliers as well as the firms to which the goods are being
supplied. Supply chain data was drawn from the Global Trade Analysis
Project (GTAP) database, which divides the world into 141 economies,
with 60 sectors within each economy.

Researchers simulated three kinds of lockdown: strict lockdown in which
80% of travel and labour ceases; a more moderate lockdown with a 60%
reduction; a third, lighter lockdown with a 40% reduction in travel and
labour. The strict, 80% reduction is based roughly on China's lockdown,
during which data suggests 80% of travel stopped, while the 60% lockdown broadly reflects the approach taken in Europe and the United States.


========================================================================== Story Source: Materials provided by University_College_London. Note:
Content may be edited for style and length.


========================================================================== Journal Reference:
1. Dabo Guan, Daoping Wang, Stephane Hallegatte, Steven J. Davis,
Jingwen
Huo, Shuping Li, Yangchun Bai, Tianyang Lei, Qianyu Xue, D'Maris
Coffman, Danyang Cheng, Peipei Chen, Xi Liang, Bing Xu, Xiaosheng
Lu, Shouyang Wang, Klaus Hubacek, Peng Gong. Global supply-chain
effects of COVID-19 control measures. Nature Human Behaviour,
2020; DOI: 10.1038/s41562-020- 0896-8 ==========================================================================

Link to news story: https://www.sciencedaily.com/releases/2020/06/200603100517.htm https://www.sciencedaily.com/releases/2020/06/200603100517.htm

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