РОССИЙСКО-АРМЯНСКИЙ УНИВЕРСИТЕТ

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:

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

Finally, as both of main indicators: employees in lockdown and GDP multiplier are most sensitive and based on ambiguous assumptions. Sensitivity analysis in respect of these two indicators presented for each assessment.
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)