IMF warns against rush to reopen economies
COUNTRIES in Europe need to proceed cautiously in removing lockdowns or they risk renewed coronavirus outbreaks, the International Monetary Fund has warned.
The comments came as Ireland aims to start the process of opening up our economy from May 18, and after renewed outbreaks in Germany as it eased its lockdowns. Governments across the globe are balancing the damage being done to the economy against health risks.
“In both Europe and Asia, lockdowns and other restrictions have imposed a significant economic and psychological cost on citizens, and their desire to roll back these measures and reopen economies is all too understandable,” the head of the IMF in Europe, Poul Thomsen, wrote in a publication with his Asian counterpart Chang Yong Rhee.
“However, moving too early and before wide-reaching measures to quickly identify and contain new infections are in place would put the gains in fighting the spread of Covid19 at stake and risks imposing new human and economic costs,” they wrote.
The economy here is set to contract by 10pc this year and over a million Irish workers depend on the State for at least part of their income. The risk is that the longer the lockdowns go on, more firms will not be able to resume business or will be overwhelmed with debt when they do so.
European Commission President Ursula von der Leyen has already warned that opening up “is conditional on being able to handle a second wave of infections”, something that is not achievable without widespread and rapid testing and the potential for a vaccine which is a long way off.
China, as the first country to experience the outbreak and the first to lock down, has emerged first and even though restrictions have been lifted, the rapid recovery in the industrial and construction sectors has not been matched in the consumer sector as people are still worried about infection. Economists are making use of location data from Google and Apple to measure the return to pre-pandemic patterns of travel, work and consumption.
“While announcements of relaxed lockdown restrictions in a number of economies, including Germany, have gained a lot of attention, it remains too early to judge the economic impact,” consultancy Oxford Economics said in a report. That process of reopening in Europe may pose more health and other risks than that in Asia, the IMF warned.
“While reopening strategies differ, Europe appears to be reopening its economy earlier in the epidemic cycle than China. In addition, the capacity for large-scale testing, contact tracing and case isolation in Europe may lag behind the best examples in Asia, partly reflecting stringent privacy rules,” Mr Thomsen and Mr Rhee wrote.
Recent calculations from Deutsche bank suggest if social distancing proves less effective and/or more disruptive to economic activity than we are assuming, and antiviral drugs less helpful, the prospects for even a moderate bounce in activity in the second half of this year could be dashed.
“This would move the path of GDP globally another 5pc below our baseline,” its economists warned.
The European Commission recommends tracking apps, but only on a voluntary basis, whereas governments in Asian countries such as China, South Korea and Singapore have used compulsion.
“Consequently, Europe appears to be more at risk than some Asian countries, including China, though no country can confidently declare victory against the virus,” the IMF said.