Save lives or livelihoods?

Byline: Amna S

At this point, it has become clear that the situation under COVID-19 is escalating quickly and the world will face profound health and socio-economic challenges in the upcoming quarter. No one yet knows what the ultimate economic cost of COVID-19 will be, but the consensus seems to be that it won't be pretty. UNCTAD has warned of a slowdown in the global growth of around 2% which wipes almost $1 trillion off the value of the world economy. In the past, a big contraction in economic activity is followed by a bustling aftermath but not without the long-term negative effects.

The adverse effect of a pandemic is not restricted to human effects but an overall devastating effect on the economy. The necessary measures being undertaken to contain the virus such as isolation, social distancing, closure of academic institutes, working remotely, shutdown of non-essential businesses, eventually halt the economic activity. Therefore, flattening the medical curve through containment steepens the recession curve as shown in the diagram below by Centre for Economic Policy Research.

Containment measures flatten the infection curve, but steepen the recession curve.

Image: Centre for Economic Policy Research (CEPR)

Though, there are various levels of economic effects of COVID-19 pandemic on both supply and demand side similar to those seen in previous pandemics.

Currently, the global economy is suffering from an unprecedented supply shock. The least important impact in economic terms comes from sickness-related absenteeism that is the fall in production due to workers taking time off. Some workers will take time off because they are sick, while others as a precaution leading to disrupted work schedules and loss in productivity. Moreover, school closures will further restrict labour supply as some workers especially females will take time off to take care of children and avoid the risk of contamination. Repeated shut downs that will save lives but at a staggering cost of jobs and livelihoods.The consequent fall in production will potentially raise costs and lead to temporary inflation, however, central bank can ignore this as companies usually have the ability to compensate for this by either offering overtime work or hiring temporary workers post pandemic.

Another reason for lost revenue and disrupted supply chains is due to the temporary shutdown of the world factory, China. China is the world's second largest economy and one of the leading...