Economic costs of Covid-19.

Byline: Sakib Sherani

THE latest economic data from Sweden - one of the few countries to remain open during the coronavirus pandemic as a matter of policy choice - is grim. Its economy is heading into its worst recession since World War II, and is expected to contract seven per cent this year. Forty per cent of businesses in the country's services sector are on the verge of bankruptcy.

Why does economic data from Sweden matter? Because it clearly reveals what some of us have been writing about and pointing to in the past few months - opening the economy in the middle of a virus pandemic is not going to lead to the outcome the prime minister, his government team, or the business community have ignorantly been hoping for. (Unfortunately, even the Supreme Court has waded into this.) Evidence, not wishful thinking, should be the basis for policy. The evidence indicates that a strong public health response ensures a strong economic recovery. This is as true for Sweden today as it was true for the US a hundred years ago during the Spanish flu epidemic. (I have covered this aspect previously; according to published research, economic activity in US cities that imposed tighter lockdowns bounced back quicker and stronger than those cities that had looser restrictions in place.)

While the government has framed the question of the economic impact purely in terms of lockdown versus no lockdown (completely ignoring the public health aspect), the fact of the matter is that economies around the world are being buffeted in three related ways:

The economic impact is via multiple channels.

- The 'exogenous' economic disruption caused by the pandemic (upended supply chains, halted global transportation and logistics links, interrupted flow of goods, people, investment and capital);

- The 'endogenous' economic disruption caused in response to the pandemic via lockdowns and other suppression measures (closed factories, businesses and markets);

- The public health effect (productivity loss, absenteeism, fearful consumers, fiscal and other costs associated with Covid-19).

While the three channels of impact are overlapping, and reinforce each other, it is important to recognise they are also separate strands. Hence, while an economy may choose to avoid lockdowns, it will not be able to escape the effects of the public health crisis or the effects of the global economic recession.

This is where Sweden finds itself. The saving grace of sorts in their case is that...