Is this economic self-destruction unavoidable?

Robert Carling

23 April 2020 | Ideas@TheCentre

If you want to know how much the coronavirus pandemic might cost, the International Monetary Fund’s recent world economic outlook is a good place to start.

Under a scenario in which the current quarter sees the worst of it for the world economy and a vigorous recovery starts in the September quarter, the IMF sees global GDP shrinking by 3% in 2020 as a whole.

This may not sound like much, but it is much worse than the GFC recession. They see a bounce-back in 2021 but by the end of that year GDP will still be below where it would have been had the coronavirus never happened.

In this scenario — which is by no means the worst the IMF can envisage — the shortfall of predicted GDP from what it would have been without the virus is a staggering $US15 trillion in 2020 and 2021 (our share of which is close to $A300 billion).

The global loss is like shutting down the entire US economy for the rest of this year, or putting the economies of Japan, Germany, France and Canada into a coma for a whole year. The cost in unemployment is measured in the tens of millions.

And the damage won’t end in 2021. The longer a recession or depression continues, the more long-lasting damage it does.

This is why it is so important that the economic self-destruction of the lockdown be as short as possible consistent with carefully judged prudence in safeguarding public health.

It is already too late to avoid a terrible June quarter, but it is not too late to take action — by loosening restrictions — that will avoid economic costs of the magnitude the IMF is predicting later in 2020 and beyond.

Every extra day of restrictions at the current level brings a fearful future cost.

Economics doesn’t have all the answers, but it can at least quantify the possible costs and ask whether much the same benefits to public health can be achieved at less cost.

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