IMF economic outlook: Lifting lockdowns won’t help recovery until cases fall

IMF economic outlook: Lifting lockdowns won’t help recovery until cases fall

  • Reversing lockdown measures while cases remain elevated is unlikely to drive a robust economic recovery, the International Monetary Fund said in a Thursday blog post.
  • Researchers at the organization found that voluntary quarantining plays a substantial role in stifling a rebound as fears of contracting the coronavirus keeps consumers from boosting economic activity.
  • While lockdowns present some short-term costs, they “may lead to a faster economic recovery as they lower infections and thus the extent of voluntary social distancing,” the team wrote.
  • Addressing the health crisis “appears to be a pre-condition to allow for a strong and sustained economic recovery,” the IMF added.
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Ending lockdowns while coronavirus cases remain elevated is unlikely to accelerate economic growth and poses new dangers, the International Monetary Fund said Thursday.

Researchers at the organization found that although quarantine orders contributed to the second quarter’s historic drop in gross domestic product, relaxing such measures won’t yield a proportional rebound on its own. Fear of contracting the virus also kept consumers indoors and exacerbated the global recession. Lifting lockdowns can prove ineffective if heightened infection rates lead people to voluntarily quarantine, the IMF said. 

“Lockdowns impose short-term costs but may lead to a faster economic recovery as they lower infections and thus the extent of voluntary social distancing,” researchers Francesco Grigoli and Damiano Sandri wrote in a blog post.

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By analyzing Google mobility data and job postings across 128 countries, the IMF found that lockdowns and voluntary distancing contributed “substantially” to a drop in labor demand and activity. The hit driven by voluntary social distancing was larger in advanced economies where people could work from home. Low-income countries saw more citizens unable to voluntarily distance as they lacked the financial means to avoid work outside the home.

The data should warn policymakers against prematurely lifting lockdown measures before infection rates trend lower, the IMF said.

“Addressing the health risks appears to be a pre-condition to allow for a strong and sustained economic recovery,” the team added.

The statement echoes a similar warning uttered by Federal Reserve policymakers, Wall Street strategists, and politicians: that the path of economic recovery hinges on the path of the virus.

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Economic indicators in the US have largely backed up the statement, as an early-summer rebound in cases stifled spending and revived fears of a prolonged recession. COVID-19 cases are again trending higher in the US, threatening to reverse an already slowing recovery.

The IMF warned of a “difficult climb” ahead for the global economy earlier in the week. Managing director Kristalina Georgieva said Tuesday that, despite a bounce in GDP last quarter, 2021 will bring “a partial and uneven recovery.” Unprecedented stimulus from governments and central banks will drive global public debt to 100% of world GDP for the first time ever in 2020. More job losses are turning permanent, and bankruptcies still threaten to derail recovery efforts.

Still, the managing director signaled stronger-than-expected growth in the second and third quarters will fuel a “small upward revision” to the IMF’s 2020 growth forecast. The organization is expected to release its updated outlook on Tuesday. It’s previous projection saw global GDP contracting 4.9% this year.

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