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reThe International Monetary Fund, or IMF for short, is a very controversial organization. In the financial restructuring of emerging economies and, more recently, euro countries such as Greece, the fund experienced difficult conditions in some cases and has therefore received much criticism in the past. The advice given by IMF scientists to politicians also has what it takes to provoke resistance and opposition.
This should also apply to the new document written by IMF auguries. In it, economists addressed the question of whether a hard blockade, that is, the deliberate stoppage of social and economic life, is the correct response to the outbreak of the crown pandemic. In Germany, too, the meaning of this policy has been and is being questioned, especially since it endangers many livelihoods.
The response of the IMF researchers is surprisingly clear: yes, a strict lockdown is almost always correct and, above all: the more quickly and systematically the measures are implemented, the better it will be for the economy in the long term. The research article is titled “The Great Lockdown. Dissecting the economic effects ”, which could be translated as“ The Great Close. An in-depth analysis of the economic impact ”.
Source: WORLD infographic
In the study, the organization’s experts admit that contact restrictions and other measures cause a drastic collapse in economic performance. Furthermore, the abrupt closure of social interaction could have a number of unwanted side effects. National budgets are also under considerable strain.
In most cases, however, the Washington researchers see no realistic alternative. Above all, they find that a badly executed or prematurely terminated lock is the worst of all variants. Keep in mind: even voluntary social distancing for fear of infection can trigger a recession and drag on.
“One should warn against the hasty lifting of a blockade to start economic activity,” write IMF economists Francesco Grigoli and Damiano Sandri. Political decision makers who believe that the economy will recover spontaneously and as if on its own might be disappointed.
The reason is compelling: if the risk of infection remains high, many people will continue to voluntarily restrict their mobility for fear of infection. In the medium and long term, this will put pressure on the recovery of gross domestic product (GDP), which in turn is the basis for tax collection and welfare.
Only when the lockdown has led to a significant reduction in the spread of Covid-19 and citizens feel safe again to go about their daily activities, does it make sense to end the measures. This assessment is likely to fuel the discussion in Europe, but also within the United States, where the duration of quarantine restrictions in states was at times extremely controversial. The reasoning of the IMF researchers is economic, not legal or ethical.
“Lockdown measures can significantly reduce Covid-19 infections, especially if they are introduced early in a country’s epidemic and are strict enough,” the report expressly states. And then: a low risk of infection is a prerequisite for the economy to recover. According to experts, there is no doubt that a tough blockade, such as the tax in France, Spain and Italy, will put massive pressure on the economy in the short term.
Source: WORLD infographic
In fact, the fall in gross domestic product was especially marked in the first half of 2020, that is, during the first wave of the pandemic. In Sweden, on the other hand, with its relatively soft measures and its reliance on personal responsibility, GDP did not decline that much. Both ways seem feasible. Meanwhile, researchers see hints of the old wisdom: In danger and greater need, the middle road brings death.
If the lockdown is held long enough and consistently enough, it should help the economy recover quickly. Because then the population could escape the vicious cycle of fear and contagion.
“The closures, despite the short-term economic costs, can pave the way to a faster recovery by containing the spread of the virus and reducing the need for voluntary social distancing over time,” the report said. Overall, they would have a positive impact on the economic recovery.
Exception: countries with extremely considerate populations
However, the fund’s auguries admit that the decision on the severity of the blockade also depends on the considered behavior of the population, known as social capital. “Countries with higher social capital may not need to impose strict bans, as people make sure not to infect others.” For example, South Korea and Taiwan managed without draconian internal restrictions.
These countries could also better withstand the economic effects of the crisis. In short: if the population behaves responsibly on its own initiative, a strict lockdown can possibly be avoided.
The effect of lockdowns on the number of infections and the economy is not the only thing to consider. Researchers see signs that overstretched crown defense measures are leading to an expansion of economic inequality.
For example, while people of retirement age had relatively little to adjust their behavior, the artificial coma of the economy was a turning point for young people early in their working lives. “Younger people are more likely to have to come to work, so people of working age experienced a sharp decline in their mobility.”
This decline was particularly pronounced among 18-24 year olds (including students) and 25-44 year olds. The effects were less pronounced in those older than 65 years.
If this trend continues and young people work in professions where telecommuting is not possible, the prolonged lockdown will mean continued financial hardship for them, possibly a setback in their overall career planning. Researchers see material dangers especially for working mothers.
