Rolling lockdowns risk inflicting permanent damage
A very quiet Patrick’s Street in Cork during the first week of Level 5 restrictions. Picture: Dan Linehan
Countries across Europe are increasing restrictions to try and contain the second wave of Coronavirus, but to date, only Wales and Ireland have gone as far as re-imposing national lockdowns.
The Welsh Government has introduced a two-week ‘fire-break’ lockdown, but the Irish government has gone further with a six-week lockdown, even though the second wave in Ireland is not particularly virulent compared to elsewhere in Europe.
Furthermore, hospitalisation, ICU and mortality rates here remain low relative to the first wave. Hospitalisation and mortality rates are much lower across Europe as well. This is not just because the second wave is impacting a broader cohort of the population and not mainly older people as happened in the spring. Countries are better at protecting the most vulnerable sectors of the population, especially the elderly, helped by the more widespread availability of PPE. In addition, treatments have improved, leading to better survival rates in all age groups for those that are hospitalised.
The six-week lockdown in Ireland is quite a dramatic move, both in a European context and given the nature of this outbreak. However, it is not as extensive as the lockdown in the spring. Construction, schools and all manufacturing remain open. There has not been a complete shutdown of sporting activities. A broader range of retail stores are being deemed essential and can stay open. Stores that have had to close may also have improved their online capability and can offer click and collect services.
Nevertheless, a large part of the services sector of the economy has been shut down again.
Employment will take another big hit. These peaked at 600,000 in April before falling back to below 220,000 at end September. This figure could now double again.
The Department of Finance has revised down its 2020 GDP forecast set out in the recent Budget of -2.4% to -3.5% following the new lockdown. The lockdown in the first half of the year had a very negative impact on the domestic economy. Modified final domestic demand fell by 1.3% in quarter one and then a whopping 16.4% in the second quarter.
The resilience of exports, though, meant the decline in GDP was much more modest in quarter two at 6.1%, a lot less than in other countries. Thus, Ireland will be an outperformer on GDP in Europe this year, despite two lockdowns. The Department's projection of a 3.5% decline in GDP in 2020 compares with expected falls of 8% in the Eurozone and 10% in the UK in the latest OECD Economic Update.
Ireland, though, needs to be better at managing new waves of the coronavirus if they continue to materialise in 2021. Rolling lockdowns risk inflicting permanent damage to the economy, especially from long term scarring effects such as rising business failures, increasing bad debts, permanently higher unemployment, lower labour force participation and the less efficient allocation of resources.
Ongoing lockdowns would also test the limits of fiscal policy to continue providing high levels of support to the economy, as we are currently seeing in the UK. It will also be interesting to see if other European countries can bring their second waves under control without the need for full lockdowns. It will be hard to justify further lockdowns here if this proves to be the case.
