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Killer economics: Are Covid-19 lockdowns a thing of the past?

By removing lockdowns, easing travel, limiting restrictions and pretending life is back to normal, we are giving the COVID-19 virus room to roam and a license to kill. Yet do we really have a choice?

Three broad strategies for fighting the coronavirus and restarting the economy have emerged The World Bank April’s projection are that 70-100 million people will be pushed into extreme poverty IMF’s updated economic outlook for the MENA showed -7.3% real GDP growth for oil exporters in 2020

There is a killer in our midst and we are inviting it home, to sit on our table and threaten our lives and livelihoods.

By removing lockdowns, easing travel, limiting restrictions and pretending life is back to normal, we are giving the COVID-19 virus room to roam and a license to kill. 

Yet do we really have a choice?

Yes, 3 choices

Global and regional economies are balancing strain, pain and economic gain in a battle for co-existence, until a COVID-19 vaccine makes an appearance.  

According to the World Economic Forum, the world is maneuvering into position to limit the economic damage caused by COVID-19, albeit at the cost of causing increased exposure to the virus.

Yet, many countries have flattened the curve of coronavirus infections and started the precarious work of resuming economic activity.

So far, three broad strategies for fighting the coronavirus and restarting the economy have emerged and they are:

1. Crush and contain

2. Flatten and fight

3. Sustain and support

Read: Saudi Arabia’s swift intervention in pandemic pays dividends, new COVID-19 response report shows

Crush and contain (C&C)

A small number of governments moved quickly to contain the spread of the coronavirus. The best example out there is South Korea which moved swiftly to impose restrictions, and deploy comprehensive virus-monitoring systems and quarantined hot spots to avoid a complete shutdown. New Zealand followed with similar measures.  

A C&C strategy poses the most severe impact on any economy, as lockdowns and mobility restrictions, if prolonged, often translate into financial ruin that spares no business, regardless of size.   

Flatten and fight (F&F)

The majority of countries pursued a broad strategy of F&F, implementing society-wide social distancing and restrictions aimed at reopening the economy in phases without overwhelming the healthcare system. 

F&F strategies create more severe health outcomes than C&C, but better economic outputs.  

Sustain and support (S&S)

Exclusive to Sweden was an approach built on selective and largely voluntary restrictions to protect vulnerable population segments, such as the elderly, while keeping much of society and the economy open. As of early May, Sweden had three to seven times the number of deaths per capita as its Nordic peers. Mobility data suggests Sweden’s residents are commuting, shopping and taking public transit about 15% less, on and survey data suggests that most Swedes support the approach, which may make it more sustainable over time.

Read: Twin Shocks Of Low Oil And COVID-19 Mean Double Trouble For GCC Corporates- S&P

The state of the GCC

Coronavirus continues to spread it wings in GCC countries, the number of confirmed cases are on rise, though the deaths due to the virus so far have been under check, according to AlMarkaz.

The World Bank April’s projection are that 70-100 million people will be pushed into extreme poverty ($1.90 per day) as a result of a coronavirus-induced global recession. 

According to AlMonitor, Asian economies are showing stronger resilience than the Middle East. On July 13, the IMF’s updated economic outlook for the MENA showed -7.3% real GDP growth for oil exporters in 2020 before returning to positive growth of about 3% in 2021. This amounts to a loss in oil export revenue to the region of about $270 billion in 2020.

 The GCC and other Arab countries must have a right balance between opening up their economies and keeping coronavirus cases down over the next six months in order to ensure sustainable recovery, according to economists and political analysts.

Jihad Azour, chief economist for the MENA region at the IMF, said that regional governments should keep an eye on the pandemic because the risk is not over and with reopening there is still an increased number of cases.

Azour added that there are some risks to certain UAE sectors that are exposed internationally, like tourism, airline and transportation.

He stressed increased access to finance and support to SMEs.

Bank lending to SMEs represents less than 5% of total loans, according to Fitch Ratings. That’s in spite of a massive stimulus package, approaching $69.7 billion—around 17% of GDP—from the UAE.

S&P Global Ratings said July 19 that it expected Gulf countries’ government debt to increase by a record high of about $100 billion this year, due to the coronavirus crisis and low oil prices. GCC countries will register an aggregate central government deficit of about $180 billion, to be financed with $100 billion of debt and an $80 billion draw-down in government assets, the rating agency said.

With a $2.3 trillion in assets at the end of 2019, banks in the GCC can absorb up to $36 billion in extra provisions before their capital bases erode, according to S&P Global Ratings.