A second wave of Covid-19 will punish the economy, lockdown or not

If coronavirus cases spike again consumers will lock down their spending and activity regardless

The weather was hot. The risks of catching Covid-19 had diminished. The two-metre social distancing rule was being cut to one metre. Boris Johnson said the months of hibernation were coming to an end.

Everything screamed the same message: time to say goodbye to the lockdown and hit the beach. Cue panic on the part of ministers and local officials fearful of a second spike in infections.

The day-trippers to Bournemouth were clearly reckless, but in one sense they have done the government a favour. If there is no pick up in the infection rate after families have spent the day cheek by jowl on the golden sands of Dorset, that will be a signal that the virus is tamed, at least for now, prompting a further relaxation of the lockdown. Conversely, if there is a pick up in infections that can be linked to visits to seaside resorts that will be a reason for caution. While not exactly a controlled experiment, the influx of visitors to Bournemouth provides a wealth of useful data.

Similar studies are going on across the world. The US, with its federal system of government, provides 50 experiments, because the individual states vary in size, age profile, population density and in their response to pandemic.

The message from the US is not especially encouraging for the UK. Nationally, the number of cases is on a clear upward trend, as is the number of people being admitted to hospital. The surge began at the start of June, shortly after the Memorial Day holiday on 25 May showed the same sort of flouting social-distancing protocol as seen in Bournemouth last week.

The sharpest increases in cases have been seen in the south and west, and one hypothesis worth testing is whether there is a link between those states that eased restrictions fastest and those seeing an increase in infection rates.

Certainly, there is now a more cautious mood. Texas has announced the closure of bars and the beaches in Miami have been closed as the authorities throw lockdown easing plans into reverse.

Consumers, though, did not bother to wait for the politicians to act. As research by the US financial firm Jefferies has shown, in states such as Arizona, Texas and Utah, where the number of cases is rising exponentially, activity is starting to contract. State by state comparisons of Google data, which tracks visits to retail and recreation establishments, show states where the virus is spreading are performing markedly worse than the rest of the country.

Donald Trump has said the public shouldn’t worry because the rise in cases is the result of more widespread testing. The Jefferies research found that in some states – California and Nevada, for example – this was true. In other states, however, the virus was spreading. What’s more, Americans understood the difference because the loss of momentum was concentrated in states where a rising caseload could not be put down to testing. In California and Nevada, activity has continued to strengthen.

There is something of the tale of the tortoise and the hare about this. The states with the lowest spread of Covid-19 cases got the virus early and imposed the most stringent lockdowns. They suffered bigger hits to economic activity than the states that had more relaxed regimes, but are now playing catch up. Jefferies said overall activity in the US was still rising, albeit at a slower pace than a month ago.

“That said, our work strongly suggests that individuals and businesses are not psychologically immune to pandemic developments and will retrench if the virus starts spreading again, regardless of official government restrictions (or lack thereof).”

Support for this notion is provided by another comparison, that between Denmark and Sweden. The two Scandinavian countries, while similar in many respects, approached Covid-19 quite differently. Sweden decided not to have a lockdown, but instead chose to trust its people to behave responsibly. Denmark, by contrast, imposed one of the earliest and toughest lockdowns in Europe.

Sign up to the daily Business Today email or follow Guardian Business on Twitter at @BusinessDesk

When the two countries went their separate ways at the start of the crisis, the assumption was that Sweden would have more deaths but suffer less damage to its economy. Not so, says Dhaval Joshi, of BCA research: Sweden’s death rate is five times as high as Denmark’s but when it comes to economic performance there’s not a lot in it.

The reason for that, he says, is that people change their behaviour whether there is a lockdown or not. They avoid public transport, stay away from shops and refuse to send their children to school.

So does that mean the outcome is the same whether a lockdown is imposed or not? No, because while the majority of people will act prudently without being forced to do so in order to avoid catching the virus a minority will refuse to change their habits. “In the pandemic, this is critical because less than 10% of infected people are responsible for creating 90% of all coronavirus infections,” Joshi says. “If this tiny minority of so-called ‘super-spreaders’ is left unchecked, then the pandemic will let rip.”

There is good news and bad news for the UK in all this. The good news is that the Denmark-Sweden experience suggests there was no trade off between health and the economy, justifying the case for a lockdown. The experience of New York state suggests that a tough lockdown reduces the risk of a second wave and makes it easier for life to return to normal. The bad news is that if the virus does flare up again as a result of raves or beach barbecues, there won’t need to be another lockdown for recovery to be aborted. It will happen anyway.

Contributor

Larry Elliott

The GuardianTramp

Related Content

Article image
Britain's free market economy isn't working
The laissez-faire economic model has proved a complete dud. A proper industrial strategy is needed, starting with better help for a foundation industry – steel

Larry Elliott

03, Apr, 2016 @10:26 AM

Article image
UK economy poised to recover after Covid-19 second wave
Our latest snapshot of key economic indicators shows the deficit soaring but unemployment holding steady

Richard Partington Economics correspondent

31, Mar, 2021 @5:00 AM

Article image
UK economy suffering most damage since first wave of Covid-19
Some positive signs besides vaccine rollout, but high infection rates and lockdown measures taking their toll

Richard Partington Economics correspondent

29, Jan, 2021 @6:00 AM

Article image
How much did the Covid-19 lockdown really cost the UK? | Larry Elliott
Economists have conducted a cost-benefit analysis of the blanket shutdown. It makes for grim reading

Larry Elliott

06, Sep, 2020 @11:01 AM

Article image
UK economy shows signs of faltering before second Covid-19 wave
Guardian analysis shows mounting fears of double-dip recession as activity weakens

Richard Partington Economics correspondent

29, Sep, 2020 @1:00 PM

Article image
Spending splurge before Covid lockdown 2 reveals the true trade-offs
Pandemic highlights big gap between what Covid restrictions we support and whether we actually abide by them

Larry Elliott

15, Nov, 2020 @11:47 AM

Article image
Is the growth in living standards worse now than in the Great Depression?
New data suggests life is getting tougher now for working-age adults than in the lost decade of the 1930s

Larry Elliott

22, Oct, 2017 @11:10 AM

Article image
The past three months have proved it: the costs of lockdown are too high | Larry Elliott
Governments know the economic, social, health and educational costs of full Covid-19 lockdowns are too high

Larry Elliott

14, Jun, 2020 @10:01 AM

Article image
More long-term thinking is needed to protect the UK economy
Stop-start policies are harming UK plc and the fight against Covid-19. Rishi Sunak needs to plan ahead now

Richard Partington

20, Sep, 2020 @12:58 PM

Article image
UK's economy suffers in November but Covid vaccine hopes ease gloom
Our latest snapshot of key economic indicators shows travel down and inflation up amid double-dip recession

Richard Partington Economics correspondent

27, Nov, 2020 @6:00 AM