- 03 Апр
- 2020
Assessment of the economic impact of restrictive government policies (lockdowns) to combat coronavirus.
By: Vahram Avanesyan
According to assessment, GDP loses (direct, indirect and induced) due to restrictive government policies (lockdowns) to contain spread of the virus over the world amounted over 250 billion USD per each working day or 0.3% of global GDP.
Assessment approach and general assumptions
The assessment based on very simple approach. Direct loses of the GDP calculated based on number of employees in lockdowns (restricted from the work or imposed non-working days) multiplied by labor productivity (GDP per employed). In its turn number of employees in lockdowns calculated based on number of populations under restrictions and employment to population ratios. Employment to population ratios adjusted to take into account usual exemptions, such as public utilities, groceries, food production, health care providers, pharmaceutical and other related producers and service providers, etc. In base scenario employment to population ratios reduced by 10 percentage points to reflect exclusions from lockdowns.
In addition to direct effects and more harmful will be various indirect and induced loses resulted from (i) reduced internal demand down the supply chain; (ii) reduced internal demand induced by reduced incomes of households; (iii) reduced external demand induced by reduced outputs of counterpart countries (iv) reduced external demand resulted from travel bans; (v) reduced external demand resulted from cargo interruptions, etc. Putting in simple words, if as a result of lockdowns and isolations, people cannot produce something then those not under this restriction can end up with luck of supplies or/and luck of demand for their goods and services, so called multiplier effects. The basic, somehow trivial observation, is that if, for example 30% of economy is shut down for one day due to restrictions, then overall economic losses will be in a range of 30% to 100% of the daily GDP of the economy[1], depending on magnitude of economic integration. In this example indirect and induced losses can be in the range of 1 to 3. At this point it is important to note that in case that restrictions applied entirely to economy then there is no multiplier effect in place and the loss will be just the 100% of GDP otherwise have been produced in that particular period of time.
Main assumptions are as follows:
Assessment approach and general assumptions
The assessment based on very simple approach. Direct loses of the GDP calculated based on number of employees in lockdowns (restricted from the work or imposed non-working days) multiplied by labor productivity (GDP per employed). In its turn number of employees in lockdowns calculated based on number of populations under restrictions and employment to population ratios. Employment to population ratios adjusted to take into account usual exemptions, such as public utilities, groceries, food production, health care providers, pharmaceutical and other related producers and service providers, etc. In base scenario employment to population ratios reduced by 10 percentage points to reflect exclusions from lockdowns.
In addition to direct effects and more harmful will be various indirect and induced loses resulted from (i) reduced internal demand down the supply chain; (ii) reduced internal demand induced by reduced incomes of households; (iii) reduced external demand induced by reduced outputs of counterpart countries (iv) reduced external demand resulted from travel bans; (v) reduced external demand resulted from cargo interruptions, etc. Putting in simple words, if as a result of lockdowns and isolations, people cannot produce something then those not under this restriction can end up with luck of supplies or/and luck of demand for their goods and services, so called multiplier effects. The basic, somehow trivial observation, is that if, for example 30% of economy is shut down for one day due to restrictions, then overall economic losses will be in a range of 30% to 100% of the daily GDP of the economy[1], depending on magnitude of economic integration. In this example indirect and induced losses can be in the range of 1 to 3. At this point it is important to note that in case that restrictions applied entirely to economy then there is no multiplier effect in place and the loss will be just the 100% of GDP otherwise have been produced in that particular period of time.
Main assumptions are as follows:
- Multiplier (which includes direct, indirect and induced effects) is calculated by dividing total employment to estimated employment in lockdown and divided by 2
- Employment ratio in lockdown calculated by subtracting 10 percentage point from employment to population ratio
Assessment results
World
The main assumptions and calculations for the World economy presented in Table 1
Table 1 COVID19 economic impact assessment results, World
| World GDP current prices, 2019 | tn USD | 85.91 | WB indicators |
| Labor productivity, year | USD | 25,933 | Authors estimate based on WB and ILO |
| Labor productivity, day | USD | 107 | Calculated based on 242 working days |
| Population | million | 7,800 | Worldometers |
| Population in lockdown | million | 2,730 | https://www.businessinsider.com/countries-on-lockdown-coronavirus-italy-2020-3 |
| Population in lockdown as % of total | % | 35.0% | |
| Employment ratio* | % | 48.0% | ILO |
| World employment | million | 3,744 | Estimate |
| Employment ratio in lockdown * | % | 38% | ILO minus 10 % point |
| Employees in lockdown | million | 1037 | Calculated |
| GDP lost per day, direct | bn USD | 111 | Calculated |
| Output multiplier max | number | 3.61 | Total employment divided to employment in lockdown |
| Output type 2 multiplier | number | 2.28 | = (1+3.61)/2 |
| GDP lost per day, direct and indirect | bn USD | 253 | Calculated |
| Lockdown working days | days | 20 | Estimate |
| Estimated GDP lost for 2020 | tn USD | 5.1 | Calculated |
| GDP loses as % of GDP | % | -5.9% | Calculated |
Sensitivity analysis in respect of GDP multiplier and Employment ratio presented in the table below.
.
| World: COVID 19 impact, GDP contraction sensitivity table, % of GDP | ||||||||
| Employment ratio | ||||||||
| -5.9% | -10.0% | -7.5% | -5.0% | 0.0% | 1.5% | 3.5% | 5.0% | |
| GDP multiplier | -1 | -2.4% | -2.7% | -2.9% | -3.3% | -3.4% | -3.6% | -3.7% |
| -0.5 | -3.4% | -3.7% | -4.0% | -4.6% | -4.8% | -5.0% | -5.2% | |
| -0.25 | -3.9% | -4.2% | -4.6% | -5.3% | -5.5% | -5.7% | -5.9% | |
| 0 | -4.3% | -4.7% | -5.1% | -5.9% | -6.1% | -6.4% | -6.7% | |
| 0.25 | -4.8% | -5.3% | -5.7% | -6.5% | -6.8% | -7.2% | -7.4% | |
| 0.5 | -5.3% | -5.8% | -6.2% | -7.2% | -7.5% | -7.9% | -8.1% | |
| 1 | -6.3% | -6.8% | -7.4% | -8.5% | -8.8% | -9.3% | -9.6% | |
Armenia
For assessment of the coronavirus containment measures direct impact on Armenia economy two additional assumptions has been used. First, as agriculture output in Armenia predominantly produced in small, family-based farms, labor productivity and employment in lockdown does not include agriculture. Second, since 2018 there are different statistics on employment, two mains are Labor force survey and State revenue committee data base. The assessment use labor force survey statistics according which employment to population ration in Armenia without agricultural employment amount to 780 thousand or 26% of population.
Armenia economy has one important characteristic which make it more vulnerable to external shocks originated in Russia In addition to the assessment of economic impact of the internal lockdown and isolation measures, in Armenia case, it is important also to evaluate coronavirus impact on remittances. Remittances, from working migrants and private transfers, originated predominantly from Russia and amount to about 9% (in net terms) of the Armenia GDP. As both Russia and Armenia impose travel bans most vulnerable will be situation with working migrants. In 2018 net primary incomes from working migrants amount to 657 million USD. We estimate that the travel restrictions main remain in place for 120 days and taking into account induced losses the total GDP loss will amount to 280 million USD for 2020. In respect of private transfers (490 million USD) main losses for Armenia economy will be as a result of depreciation of Russian ruble and reduced population incomes due to coronavirus impact.
The main assumptions and calculations for the Armenia economy presented in Table 2.
Table 2 COVID19 economic impact assessment results, Armenia
| GDP at current prices | bn USD | 13.636 | Statistical Committee of The RA |
| Labor productivity (without agro) | USD | 19,571 | Author calculations |
| Labor productivity, day | USD | 81 | Calculated based on 242 working days |
| Population in lockdown | million | 2.96 | 100% of population |
| Employment without agro | thousand | 782 | Statistical Committee of The RA |
| Employment without agro, ratio | % | 26% | Calculated |
| Employment in lockdown ratio* | % | 16% | Estimate |
| Employees in lockdown | thousand | 486 | Calculated |
| GDP lost per day, direct | mln USD | 39.34 | Calculated |
| GDP multiplier | number | 1.3 | Main assumption |
| GDP lost per day, direct and indirect | mln USD | 51.14 | Calculated |
| Lockdown working days | days | 20 | Estimate |
| Estimated GDP lost for 2020 (Internal lockdown) | bn USD | 1.02 | Calculated |
| GDP loses as % of GDP (Internal lockdown) | -7.5% | Calculated | |
| GDP losses induced by reduced remittances | mln USD | 506.11 | Estimate |
| Primary income: compensation of employees | mln USD | 280.71 | Estimate |
| Secondary income: private transfers | mln USD | 225.4 | Estimate |
| Estimated GDP lost for 2020 | bn USD | 1.53 | Calculated |
| GDP loses as % of GDP | % | -11.2% | Calculated |
Sensitivity analysis in respect of GDP multiplier and Employment ratio presented in the table below.
| Armenia: COVID 19 impact, GDP contraction sensitivity table, % of GDP | ||||||||
| Employment ratio | ||||||||
| GDP multiplier | -11.2% | -10.0% | -7.5% | -5.0% | 0.0% | 1.5% | 3.5% | 5.0% |
| -0.6 | -4.3% | -5.0% | -5.6% | -6.8% | -7.2% | -7.7% | -8.0% | |
| -0.3 | -5.5% | -6.4% | -7.3% | -9.0% | -9.5% | -10.2% | -10.8% | |
| -0.15 | -6.1% | -7.1% | -8.1% | -10.1% | -10.7% | -11.5% | -12.1% | |
| 0 | -6.6% | -7.8% | -8.9% | -11.2% | -11.9% | -12.8% | -13.5% | |
| 0.15 | -7.2% | -8.5% | -9.8% | -12.3% | -13.1% | -14.1% | -14.9% | |
| 0.3 | -7.8% | -9.2% | -10.6% | -13.4% | -14.3% | -15.4% | -16.2% | |
| 0.6 | -9.0% | -10.6% | -12.3% | -15.6% | -16.6% | -18.0% | -19.0% | |
Russia
The main assumptions and calculations for the Russia economy presented in Table 3.
Table 3 COVID19 economic impact assessment results, Russia
| GDP at current prices | tn RUB | 109.361 |
| Labor productivity | RUB | 1,520,318 |
| Labor productivity, day | RUB | 6282 |
| Population | million | 147 |
| % of population in lockdown | % | 100% |
| Population in lockdown | million | 147 |
| Employment ratio* | % | 49% |
| Employment ratio in lockdown* | % | 39% |
| Employees in lockdown | million | 57 |
| GDP lost per day, direct | bn RUB | 359,547 |
| GDP multiplier | number | 1.25 |
| GDP lost per day, direct and indirect | bn RUB | 449.43 |
| Lockdown working days | days | 20 |
| Estimated GDP lost for 2020 | tn RUB | 8.99 |
| GDP loses as % of GDP | % | -8.2% |
Sensitivity analysis in respect of GDP multiplier and Employment ratio presented in the table below.
| Russia: COVID 19 impact, GDP contraction sensitivity table, % of GDP | ||||||||
| Employment ratio | ||||||||
| -8.2% | -10.0% | -7.5% | -5.0% | 0.0% | 1.5% | 3.5% | 5.0% | |
| GDP multiplier | -1 | -1.2% | -1.3% | -1.4% | -1.6% | -1.7% | -1.8% | -1.9% |
| -0.5 | -3.7% | -4.0% | -4.3% | -4.9% | -5.1% | -5.4% | -5.6% | |
| -0.25 | -4.9% | -5.3% | -5.7% | -6.6% | -6.8% | -7.2% | -7.4% | |
| 0 | -6.1% | -6.6% | -7.2% | -8.2% | -8.5% | -9.0% | -9.3% | |
| 0.25 | -7.3% | -8.0% | -8.6% | -9.9% | -10.2% | -10.7% | -11.1% | |
| 0.5 | -8.6% | -9.3% | -10.0% | -11.5% | -11.9% | -12.5% | -13.0% | |
| 1 | -11.0% | -11.9% | -12.9% | -14.8% | -15.4% | -16.1% | -16.7% | |
USA
The main assumptions and calculations for the US economy presented Table 4.
Table 4 COVID19 economic impact assessment results, USA
| GDP at current prices | tn USD | 21.427 |
| Labor productivity | USD | 134,000 |
| Labor productivity, day | USD | 554 |
| Population | million | 329 |
| % of population in lockdown | % | 50% |
| Population in lockdown | million | 165 |
| Employment ratio* | % | 48% |
| Employment ratio in lockdown* | % | 38% |
| Employees in lockdown | million | 63 |
| GDP lost per day, direct | bn USD | 34,660 |
| GDP multiplier | number | 1.76 |
| GDP lost per day, direct and indirect | bn USD | 61.00 |
| Lockdown working days | days | 20 |
| Estimated GDP lost 2020 | tn USD | 1.22 |
| GDP loses as % of GDP | % | -5.7% |
Sensitivity analysis in respect of GDP multiplier and Employment ratio presented in the table below.
| USA: COVID 19 impact, GDP contraction sensitivity table, % of GDP | ||||||||
| Employment ratio | ||||||||
| -5.7% | -10.0% | -7.5% | -5.0% | 0.0% | 1.5% | 3.5% | 5.0% | |
| GDP multiplier | -1 | -1.8% | -2.0% | -2.1% | -2.5% | -2.6% | -2.7% | -2.8% |
| -0.5 | -3.0% | -3.3% | -3.5% | -4.1% | -4.2% | -4.5% | -4.6% | |
| -0.25 | -3.6% | -3.9% | -4.2% | -4.9% | -5.1% | -5.3% | -5.5% | |
| 0 | -4.2% | -4.6% | -4.9% | -5.7% | -5.9% | -6.2% | -6.4% | |
| 0.25 | -4.8% | -5.2% | -5.6% | -6.5% | -6.8% | -7.1% | -7.4% | |
| 0.5 | -5.4% | -5.9% | -6.3% | -7.3% | -7.6% | -8.0% | -8.3% | |
| 1 | -6.6% | -7.2% | -7.8% | -8.9% | -9.3% | -9.8% | -10.1% | |
EU-28
The main assumptions and calculations for the EU economy presented Table 5.
Table 5 COVID19 economic impact assessment results, USA
| GDP at current prices | tn Euro | 15.9 |
| Labor productivity | Euro | 71,336 |
| Labor productivity, day | Euro | 295 |
| Population | million | 513 |
| % of population in lockdown | % | 70% |
| Population in lockdown | million | 359 |
| Employment | million | 223 |
| Employment ratio* | % | 43% |
| Employment ratio in lockdown* | % | 33% |
| Employees in lockdown | million | 119 |
| GDP lost per day, direct | bn Euro | 34,932 |
| GDP multiplier | number | 1.44 |
| GDP lost per day, direct and indirect | bn Euro | 50.30 |
| Lockdown working days | days | 20 |
| Estimated GDP lost 2020 | tn Euro | 1.01 |
| GDP loses as % of GDP | % | -6.3% |
Sensitivity analysis in respect of GDP multiplier and Employment ratio presented in the table below
| EU-28: COVID 19 impact, GDP contraction sensitivity table, % of GDP | ||||||||
| Employment ratio | ||||||||
| -6.3% | -10.0% | -7.5% | -5.0% | 0.0% | 1.5% | 3.5% | 5.0% | |
| GDP multiplier | -1 | -1.3% | -1.5% | -1.6% | -1.9% | -2.0% | -2.1% | -2.2% |
| -0.5 | -2.9% | -3.2% | -3.5% | -4.1% | -4.3% | -4.6% | -4.8% | |
| -0.25 | -3.6% | -4.0% | -4.4% | -5.2% | -5.5% | -5.8% | -6.0% | |
| 0 | -4.4% | -4.9% | -5.4% | -6.3% | -6.6% | -7.0% | -7.3% | |
| 0.25 | -5.2% | -5.7% | -6.3% | -7.4% | -7.8% | -8.2% | -8.6% | |
| 0.5 | -5.9% | -6.6% | -7.2% | -8.5% | -8.9% | -9.4% | -9.8% | |
| 1 | -7.5% | -8.3% | -9.1% | -10.7% | -11.2% | -11.9% | -12.3% | |
[1] Small open economies tend to have smaller internal multipliers. For Singapore, with 320% of trade to GDP ratio, tier 2 multiplier estimated at 1.6 (www.singstat.gov.sg) , while for India with 40% trade to GDP ratio, tier 2 multiplier estimated at 2.6 (https://www.researchgate.net/publication/233952561_Sectoral_Multipliers_Input-Imports_and_the_Indian_Economy)
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