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What is Really Shutting Down the Economy Globally?

It would seem this is a pretty easy question to answer. After all, this has not been referred to as a lock-down recession for no reason. The governments of the world elected to shut down business operations as a means by which to reduce human contact with the hopes that such isolation and quarantine would limit the spread of the COVID 19 virus.

The subsequent collapse of dozens of economies worldwide was attributed to this set of edicts. But now that we are in July and there has been a significant lifting of the restrictions in many nations, it is not so easy to pin the blame on the lockdown alone.

It seems that much of the problem is that people are fearful and are unwilling to resume their old habits regardless of the rules and regulations. At the start of the pandemic, the number of people worried about the disease was significant but far from universal. The percentage of people who listed the virus as a major concern hovered at around 40%. Today that number is between 80% and 90%.

Fully half of the individuals polled asserted that the virus is the No. 1 threat to them, their family and their country in general. These percentages change drastically from nation to nation and with the nations as well. The most worried people have been in Europe (especially harder hit states such as Italy and Spain). The least worried have been in countries that pursued more aggressive measures early on, including Germany, Austria, Denmark, Australia and Japan. Generally speaking, people in urban areas have been more concerned and older people have more worries than younger people.

An economic rebound was thought to depend on the decision by governments to lift the lockdowns, and this still remains an important factor. Businesses that can't operate can't make any money, employ people or buy anything from other businesses. It is now becoming obvious that allowing a resumption of business is not going to be enough. It is also going to require a willingness on the part of the consumer to resume old habits and patterns. It is no longer obvious that this will take place any time soon. There has been evidence emerging throughout the U.S. and Europe that consumers are still shunning stores and restaurants and a wide variety of service industries even when these have reopened.

Sweden has become a lab rat due to the decision not to restrict the population and business community when the rest of Europe elected to do so. It was assumed that Sweden would suffer more infections, hospitalizations and fatalities than other nations, but it was also assumed that its economy would fare better and the country would avoid the damage caused by the lockdown. It was also assumed that Sweden would suffer less from a renewed wave of outbreaks because it would be closer to some kind of herd immunity. Some of these assumptions have proven accurate but others have not.

There have been more than 5,400 deaths thus far; and in a nation of some 10 million people, that is a 40% higher rate than in the U.S., 12 times more than Norway, seven times more than Finland and six times more than Denmark. The problem is that Sweden's economy has also suffered as the central bank expects a contraction of 4.5% for the year as unemployment has jumped to 9.0%. These are figures comparable to Denmark, a nation that engaged in a serious lockdown from the start and only recently elected to start reopening. To be fair, the Swedish economy is dependent on its neighbors and they have been restrictive in terms of how they relate to Sweden but the bigger concern is the Swedish consumer. Even as they have been allowed to visit stores and eat at restaurants and even attend events, they have been reluctant to do so. Traffic numbers in the retail community have been half what they were last year, and attendance at events has been down by more than 75%.

The bottom line is that people are not confident regarding the virus and have been isolating themselves regardless of any official proclamation. There are certainly some that have attempted to retain their old patterns and have chafed at the restrictions, but it has become apparent that it is not just the lockdown that has kept people at home.They are afraid of the infection and are not prepared to venture out as they once did until the threat has been seriously reduced. It is hard to determine what that really means. Will a declining fatality rate be enough? Will it take the development and widespread dissemination of a vaccine before people feel able to resume old activities? Have people changed their habits permanently?

—Chris Kuehl, Ph.D., NACM Economist

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Sunday, 09 August 2020