This time is different: Four learnings so far in Pandenomics

This economic crisis is unlike others. Economic indicators did not necessarily develop as we predicted by relying on intuition or past experience. Here are four learnings we’ve drawn so far from the COVID-19 pandemic.

#1: There is no such thing as a trade-off between Corona restrictions and economic growth

Naturally, there is a tipping point beyond which it makes little to no sense to impose strict lockdowns if all the negative consequences that go along with it – including a loss in economic activity are considered.

In the past few months, Sweden has been prevalent in the media for its light approach to imposing Corona restrictions. Sweden relied heavily on the assumption that people would be responsible for themselves and act likewise. While this stance did not fail, it also did not work well, considering the high number of COVID-19 cases and related deaths. However, some people argue that this at least did protect the economy. While Sweden’s GDP decline was indeed lower than in many other European countries and the labor market was less effected during the lockdown period than other Nordic countries , we see a different picture when we take a closer look at a larger sample.

Taking numbers available from Our World in Data, we can observe a medium-strength correlation between economic growth and confirmed deaths related to COVID-19. This indicates that we are currently not talking about trade-offs between Corona restrictions and economic growth, but that a decrease in COVID-19 cases could quite directly and immediately contribute to improved economic growth.

This effect unfolds quicker than many would have expected because a lockdown restricts economic activity immediately. But after the lockdown, people feel safer going to work or spending money. It is easier to engage in international trade and tourism, and companies find themselves in a more secure environment to invest.

Therefore, the first rule of Pandenomics should be to decrease COVID-19 cases and deaths. And we should not forget that this discussion is not solely about economic benefits and costs; It is also about human lives!

#2: Unlike other modern economic crises, women are losing more than men economically

Following the Great Recession between 2007 and 2009, the term “mancession” as a description of the disproportionate effects of The Great Recession on men’s employment. However, COVID-19 flips the situation as it has disproportionately affected the employment of women and is already considered a “shecession”. Comparing women’s and men’s employment in modern US recessions highlights this difference. While the gender gap was at -1.9 percentage points during the Great Recession, it currently stands at 2.9 percentage points. Action needs to be taken to prevent larger gender gaps in the future.

One of the main reasons for this is that women often work in sectors of the economy that are typically relatively stable during a recession, such as education, healthcare, and services – which are now heavily affected by the restrictions imposed to decrease COVID-19 cases.

Forty percent of employed women globally work in the pandemic’s hard-hit sectors, while only 36.6 percent of men do so – women’s jobs are 1.8 times more likely to fall victim to the current crisis. Those numbers are likely to be true in both developing and developed countries – and are, in fact, not unusual for disease outbreaks.

#3: Remittances did not break down as much as predicted and instead proved to be resilient

In April 2020, the World Bank projected that remittances to low- and middle-income countries (LMICs) would fall by 19.7 percent to $445 billion. Remittances have, however, reached a level where their significance is undeniable: Flows of remittances to LMCIs were larger than foreign direct investment in 2019.

Remittances from the US to Mexico increased during the pandemic, in the first half of 2020. Even though Mexicans in the US probably experienced harsh times themselves, they sent money to their loved ones at home. Similar patterns were observed elsewhere, proving remittances to be more resilient than previously predicted in such a situation. Even though they declined in March and April, they are an important element in the current situation and have played a counter-cyclical role for receiving countries where the pandemic reached its peak at a later point in time. Sending remittances must become cheaper for that effect to continue – sending $200 costs, on average globally, 6.8 percent.

#4 Recent school closures will have long-term negative and heterogeneous impacts on economic growth

As indicated in a previous blog post, COVID-19 has had consequences on people’s educational lives as COVID-19 led to worldwide school closures that impacted more than one billion learners. These closures will most likely lead to lower lifetime incomes of, on average, around three percent – depending on how much re-opening have to be restricted in the coming months, this number could become a lot larger.

While other economic crises also had the harshest impact on those learners already worst-off intra-state and inter-state, this time is the impact is incomparable to any other crisis in terms of the size of the educational loss. With an educational crisis and a lost generation of learners emerging, the world has to act to prevent a long-lasting economic backlash.