New Zealand’s economic rebound in the second half of 2020 is being hailed as a vindication of its COVID-elimination strategy. In the early days of the pandemic, there was a widely-held belief that countries needed to choose between protecting their population’s health and their economy. But have countries with lower infection and death rates seen a larger economic downturn?
Multiple studies from 2020 now suggest the opposite is true. Countries that implemented a strict lockdown early in 2020 as cases began to soar have also recovered faster economically. By contrast according to Our World in Data, those countries that experienced the most severe economic downturns such as Peru, Spain and the UK were among the countries with the highest Covid-19 death rates. As Martin Wolf of the Financial Times put it “Countries have followed two strategies: suppression, or trading off deaths against the economy. By and large, the former group has done better in both respects. Meanwhile, countries that have sacrificed lives have tended to end up with high mortality and economic costs.”
Those countries that successfully suppressed the virus early have since had the luxury, as in New Zealand’s case, of moving to shorter and geographically targeted lockdowns, generally accompanied by extensive testing and compulsory track/trace systems.
To save the economy, first, save lives
From purely a health perspective, we now know that lockdowns work. In an analysis of the data up to November 2020, The Institute for New Economic Thinking (INET) concluded “Strict lockdowns do work, and they work swiftly, within 4–6 weeks. They worked not only to suppress, but to virtually eliminate the virus in Australia, New Zealand, and Iceland, as well as in China, Korea, and Taiwan.”
It is also becoming evident that in order to protect the economy, public health measures should be implemented as soon as possible. INET points out that those countries that moved quickly to suppress the virus are now reopening and growing their economies. Those countries who failed to act quickly suffered a double catastrophe as the pandemic raged out of control, which in turn increased the costs of dealing with it, impacting the overall costs to the economy.
The worst-case scenario though was in countries like the UK and the US who delayed their response and then prevaricated between different strategies. The impact on both their economy and their population’s health has been devasting.
Where to next for the economic recovery?
The global economic impact of the pandemic has been huge, estimated in one study to be in the realm of 16 trillion dollars.
While all countries started from very different economic positions, the COVID-crisis has exposed and exacerbated existing structural weaknesses. As a result, the economic recovery is also likely to be uneven. The COVID-19 Economic Recovery Index measures the degree to which countries have the right policies and institutions in place to recover from the economic impact of the pandemic. The index ranks New Zealand 14th of the 122 countries studied.
Those countries that are in a better position to recover are more likely to score well in terms of food security, workforce adaptability and social security nets. They are also more likely to have a robust digital economy and a resilient financial system. Being open to trade plays a key role in recovery. New Zealand was immediately impacted by border closures and the global contraction, but it also means it is likely to recover faster. New Zealand’s recovery will also be helped by the fact that around 84% of our exports are aimed at resilient markets.
Smaller is better for health response but the big countries will be more economically resilient
Unsurprisingly, smaller countries other than China consistently performed better in terms of their COVID health response in 2020, with those of under 10 million people proving more agile.
The Lowry Institute analysed the effectiveness of the coronavirus health response of 100 countries in the 36 weeks following their hundredth confirmed case. New Zealand took the top spot, followed by Vietnam, Taiwan and Thailand. By contrast, the US and the UK, which have suffered badly from their failure to impose sufficiently strict health measures rank 94th and 66th respectively.
The small-size advantage, while initially helpful for controlling the virus, diminished over the course of 2020 and it is the big economies that will benefit the most from what PWC is calling “the great rebound”. The IMF predicts global growth of 5.5% in 2021 and 4.2% in 2022 driven by India and China.
From all the extensive data collected in 2020, it is now clear that the trade-off between the economy and health outcomes is not as real as we initially believed. Countries who acted quickly and decisively to protect their population health may have also avoided long-term scarring to their economies. The challenge now will be for countries like New Zealand, which have successfully negotiated the immediate effects of COVID-19, to adapt to a very different post-pandemic world where almost every aspect of life and work has been impacted in both small and significant ways.