Dynamite News Lockdown Effect: Study reveals slow easing of lockdowns might be good for global economy
A cautious approach to easing lockdown restrictions that reduces the risk of later lockdowns may be better for the global supply chain in the long run, according to a new study.
London: A cautious approach to easing lockdown restrictions that reduces the risk of later lockdowns may be better for the global supply chain in the long run, according to a new study.
The study led by researchers at the UCL and Tsinghua University was published in the journal Nature Human Behaviour.
This is the first peer-reviewed study to comprehensively assess potential global supply chain effects of Covid-19 lockdowns, modelling the impact of lockdowns on 140 countries, including countries not directly affected by Covid-19.
The study found that stricter lockdowns imposed earlier - such as the two-month lockdown imposed in China - are economically preferable to more moderate lockdowns imposed for four or six months, as the duration of lockdown matters more to economies than their severity. This is because businesses can absorb the shock of a brief lockdown better by relying on reserves and because shorter lockdowns cause less disruption to regional and global supply chains.
Researchers also found that countries not directly affected by Covid-19 may nonetheless experience large losses of more than 20% of their GDP due to falls in consumer demand and bottlenecks in supply chains.
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Particularly at risk are open or highly specialised economies, such as Caribbean countries that rely on tourism and Central Asian countries such as Kazakhstan that rely on energy exports. Also vulnerable are globalised industries that rely on difficult-to-replace suppliers, such as automobile manufacturing, where production is estimated to fall by up to half.
Lead author Professor Dabo Guan (UCL Bartlett School of Construction & Project Management and Tsinghua University) said: "Our study shows the ripple effects caused by lockdowns along global supply chains, with countries not directly affected by Covid-19 still experiencing heavy economic losses.
"While predicting the true cost of lockdowns is not possible at this stage, our research suggests that shorter, stricter lockdowns minimise the impact on supply chains, while gradually easing restrictions over the course of a year may also be less disruptive than a swift lifting of restrictions followed by another lockdown."
The researchers estimated that gradually easing lockdown measures over 12 months would minimise supply chain impacts compared to lifting restrictions more quickly, over two months, and then introducing a second round of lockdowns in January next year, which they estimated would increase the cost by one-third.
Co-author Professor Steven Davis (University of California, Irvine) said: "Our analysis quantifies the global economic benefits of robust public health responses and suggests that economic justifications to re-open businesses could backfire if they result in another round of lockdowns."
Looking ahead to a potential second wave, the researchers found that a strict, globally co-ordinated lockdown implemented for two months would be less economically costly than lockdowns happening in different parts of the world at different times - risking a potential economic loss to global supply chains by 50% rather than 60%. This is because the economic cost of a lockdown goes beyond national borders and a shorter, one-off shock is easier to absorb.
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Professor Guan said: "Companies will survive the supply chain failures that lockdowns cause by relying on reserves of stock or finding new suppliers. If a second shock hits, reserves may be low and supply chains only recently repaired - making a new break much more costly."
If recurrent global lockdowns occur, New Zealand's food services sector and Jamaica's tourism industry would face estimated productivity losses of about 90%, while China's electronics business and Iran's oil industry would face productivity losses of about two thirds.
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The cost to the UK economy, meanwhile, would rise from a potential supply chain loss of 38% (one lockdown gradually eased over 12 months) to 57% (recurrent global lockdowns happening at different times in different countries).
In the United States, the cost to the financial sector would nearly double if a second global lockdown occurs, with potential supply chain loss rising from 33% (one lockdown gradually eased over 12 months) to 57% (recurrent global lockdowns happening at different times in different countries). (ANI)