May 12, 2020 / 03:28 PM / By Changyong Rhee and Poul M. Thomsen, IMFBlog /
Header Image Credit: Head Topics
Several countries in Asia and Europe, where the COVID-19 outbreak appears to have peaked, are gradually reopening their economies. Without a vaccine or effective treatment, policymakers will be balancing the benefits of resuming economic activity against the potential cost of another increase in infection rates. They face difficult choices, in part, because the costs of erring in either direction could be very large.
The timing, sequencing, and pace of the planned exits differ across countries.
Given this, authorities are adopting a gradual and sequenced approach to reopening, along with the adoption of further prevention and containment measures. While some Asian countries have already moved down this path with some success, risks remain-and the risks for Europe may be even greater. How do unlocking strategies compare across Asia and Europe?
The COVID-19 pandemic hit Asia first. It quickly spread from China to others in the region and has yet to retreat from all those countries. To date, over 250,000 people in South and East Asia have been infected, and 9,700 have died, with China, India, Indonesia, Japan, Singapore, and South Korea accounting for over 85 percent of all infections.
Following the lockdown in China in late January, and a proactive containment effort of testing, tracking, and isolating in Korea, these two countries saw new infections peak in February, just when the pandemic began to hit Europe hard. The number of confirmed cases of COVID-19 in Europe has now reached 1.8 million, representing almost half the world's total. The reported death toll stands close to 160,000, out of more than 280,000 worldwide.
Economic Impact of Lockdown Measures
To slow the spread of the virus, most European and Asian countries adopted strict lockdowns, the economic impact of which has now become evident. China's GDP dropped by 36.6 percent in the first quarter of 2020, and Korea saw an output decline of 5.5 percent (all rates are annualized and seasonally adjusted). The difference in impact reflects the fact that China faced the outbreak first and then moved to enforce strict lockdown measures, while Korea kept the economy open and followed a strategy of more targeted containment (see below).
In Europe, GDP declined by a record 21.3 percent in France, 19.2 percent in Spain, and 17.5 percent in Italy in the first quarter of 2020 (also annualized and seasonally adjusted). The second quarter is bound to be even worse.
How Asia is Restarting Economic Activity
As containment measures proved effective in curbing the epidemic, a few Asian countries are already well down the path to reopening.
In China, the number of reported new infections has stabilized at very low levels. Since mid-February, the government has been reopening the economy in a gradual, sequenced manner. It has prioritized essential sectors, specific industries, regions, and population groups based on continuous risk assessments. Meanwhile it has also been leveraging digitalization, big data and technology to support contact tracing.
Crucially, the effort has been complemented by large-scale testing, including the start of randomized screening in select provinces, and systematic tracking via mobile phone apps to rapidly trace the contacts of any new positive cases. This has been accompanied by restrictions on movement and other control measures on infected people and their contacts. So far, the reopening in China has unfolded without a debilitating second wave of infections, but this may yet change as activity normalizes further.
Korea also encountered the virus early in the global wave and put in place a swift and well-organized containment effort. This was based on large-scale testing, mandatory isolation of detected and at-risk cases, and widespread use of digitalization and technology for contact tracing. This effort was combined with the closure of schools and public facilities; comprehensive guidance on social distancing, and quarantine measures for travelers.
However, domestic mobility and business activity were never widely restricted in Korea. As a result, the resumption of economic activity is proceeding gradually, and more or less automatically as social distancing recedes. The authorities have transitioned to less stringent guidelines for â€œDaily Social Distancing,â€ which directs citizens to stay home when feeling ill, keep personal distance, wash hands frequently, wear face masks, and ventilate indoor spaces regularly.
Singapore also succeeded in containing the contagion early on following a strategy similar to Korea's. But, in early April, it tightened containment measures in response to a new outbreak.
Europe's Gradual Reopening
Several European countries have announced plans to gradually reopen their economies and some have already begun the process. The timing, sequencing, and pace of the planned exits differ across countries, reflecting differences in the progress of the epidemic but also national preferences (see below).
For example, Denmark and Norway have started by reopening lower schools and services, while Spain has lifted restrictions in manufacturing and construction, as well as for some small businesses, including retail, with safety measures. Germany has lifted restrictions on retail shops and is gradually re-opening schools, with the relaxation subject to a break mechanism allowing for re-tightening if needed. Italy has reopened manufacturing and construction (under strict safety rules) and select small stores. France has just allowed the reopening of primary schools, shops, and industry, on a differentiated regional basis, as of May 11.
Sweden stands out with its distinctive approach, and its decision not to fully lock down activity. It is too early to tell whether this strategy will prove more effective.
All countries envisage using health and social distancing measures to mitigate the risk of a new wave of contagion, but they vary by type and intensity.
Unlocking Asia and Europe: Looking Ahead
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 Asiaâ€•partly reflecting stringent privacy rules. For instance, the European Commission recommends tracking apps, but only on a voluntary basis. Consequently, Europe appears to be more at risk than some Asian countries, including China, though no country can confidently declare victory against the virus.
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. 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 COVID-19 at stake and risks imposing new human and economic costs. In charting their path out of this unprecedented lockdown, the economies in Asia and Europe should proceed carefully and resist the urge to do too much too soon and risk a relapse.