The economic implications of lockdown in Emerging Asia

By Kensuke Tanaka, Head of Asia Desk, OECD Development Centre and Mario Pezzini, Director, OECD Development Centre and Special Advisor to the OECD Secretary General on Development  


This blog is part of a series on tackling COVID-19 in developing countries. Visit the OECD dedicated page to access the OECD’s data, analysis and recommendations on the health, economic, financial and societal impacts of COVID-19 worldwide.


KL-shutterstock_1694976904
Kuala Lumpur, Malaysia. Health workers prepare to conduct a COVID-19 test for people at Flat Selangor Mansion, Masjid India. Photo: Shutterstock

First detected in China, COVID-19 has spread rapidly to other countries, infecting more than 2 million people worldwide and killing more than 127,000 to date (14 April).  From mid-March, Southeast Asian countries started to see their number of cases climb (Figures 1 and 2). As of 14 April, India confirmed over 11,000 cases, though the sharp increase can partly be attributed to more testing. Malaysia and Indonesia each surpassed the bar of 4,800 confirmed cases, while the Philippines has counted over 5,200 as of the same date. The rapid evolution of the disease has prompted authorities to announce various measures including putting entire cities and countries into lockdown to stop the virus. As early as January in China and March elsewhere, many Emerging Asian countries have imposed local or even nationwide lockdown and curfew measures (Table 1), with varying durations, geographical coverage, and scope. Lockdown measures contribute to containing the spread of the virus, but they also prevent economic activities that would otherwise take place. As the debate in countries turns to when and how to end a lockdown and restart the economy, the health and economic implications of lockdown measures need to be considered carefully.

Figure 1: Cumulative confirmed cases of COVID-19 for China

covid-figure-1

Source: OECD Development Centre based on data from Johns Hopkins University (as of 14 April, 2020).

Figure 2: Cumulative confirmed cases of COVID-19
for ASEAN-10 countries and India

covid-figure-2

Source: OECD Development Centre based on data from Johns Hopkins University (as of 14 April, 2020).

Looking at the appropriate length of a lockdown, Scherbina (2020) found that suppression policy is unlikely to produce the desired results if it is abandoned too soon – i.e. ending the policy in under six weeks – and the optimal duration of the policy depends on how effective it is in reducing the rate of transmission of the virus. An assessment of the impact of social distancing measures in India by Singh and Adhikari (2020) found that a three-week lockdown is insufficient to prevent a resurgence. Instead, sustained periods of lockdown with periodic relaxation to reduce the number of cases to the level where individualised social contact tracing and quarantine become feasible. Alternatively, Ferguson et al (2020) point out that a combination of social distancing, self-isolation, and closures of schools and universities may need to be maintained until a vaccine becomes available. Looking at the US, Atkeson (2020) warns that once mitigation efforts are relaxed, the disease will restart its rapid progression and reach its peak rate of infections approximately 15 months from now, by using the Susceptible-Infected-Recovered (SIR) model approach. Ornelas (2020) shows that the scope of the lockdown, its duration, and the underlying economic and health costs also depend on the measures that improve the capacity of the health system to cope with the epidemic and the strength of the economic fundamentals of countries.

At the same time, the economic costs of combatting the disease through lockdowns – directly and indirectly – are significant. Though it is a rough estimate, the Indian economy is expected to lose over USD 4.5 billion per day of lockdown and nearly USD 100 billion for the entire 21 day mandatory lockdown period. In the UK, estimates show that the lockdown would cost GBP 2.4 billion a day. This presents a trade-off between lockdown and curfew measures and economic activity. Policy makers in the region must tackle the challenges to public health while mitigating the economic impacts COVID-19, with recent analysis warning that the economic and health costs will be much higher for developing economies than for advanced ones. Large-scale lockdowns may not be economically nor socially sustainable over long periods.

Resuming economic activities however, should be done with caution, with prevention and control measures remaining in place. Moreover, the effectiveness of lockdown measures will differ according to what other policies are enacted simultaneously. More specifically, Guerrieri, V, et al (2020) argue that lockdown is found to be more effective when it coincides with appropriate macro policies, namely loosening monetary stance and abundant social safety net provision. In fact, many emerging Asian countries have eased their monetary policy stance, by reducing policy rates and/or lowering the reserve requirements applicable to the banking sector. Monetary measures were accompanied by ample stimulus packages aimed at easing the financial burden on firms, while preserving households’ income. The announced packages included financial support to vulnerable populations (e.g. Indonesia, the Philippines, and Singapore), and reduction of required pension fund contributions (e.g. Malaysia), among other measures.

Another major difficulty in adopting the right policy response to COVID-19 is that it has engendered an unprecedented economic crisis, combining demand and supply shocks, different to the global financial crisis of 2007-8, which was considered a demand shock. In today’s crisis, workers and businesses are prevented from continuing their activities, implying a supply shock, while lockdown measures depress aggregate demand by reducing and changing consumption activities, therefore also implying a demand shock. Since in general, the (traditional) policy prescription for demand and supply shocks are completely different, COVID-19 presents a new challenge in thinking about the policy implications of a lockdown.

While the optimal duration and scope of lockdowns remain open issues, they must be combined with the right policies to ensure their effectiveness both in preventing a resurgence, and in mitigating the unprecedented economic impacts that they bring. The economic implications of lockdown should be further discussed and analysed in the context of Emerging Asia.

Further information will be available here in the forthcoming Update of the Economic Outlook for Southeast Asia, China and India 2020, to be released in June-July 2020.

Table 1: Overview of lockdown measures in Emerging Asian countries

Country Date of first announcement Geographical coverage
China 23 January 2020 (Wuhan), 23-24 January other cities in Hubei Province, and then some other cities Wuhan in Hubei province were first to be placed under lockdown and other

cities, districts in China followed suit

India 24 March 2020 Nationwide
Indonesia 16 March 2020 Closure of public places in several provinces. Large-scale social restrictions in Jakarta
Lao PDR 29 March 2020 Nationwide
Malaysia 16 March 2020 Nationwide
Myanmar 3 April 2020 Region of Mandalay
Philippines 16 March 2020 Manila, Luzon and selected provinces, cities, and localities in Visayas and Mindanao regions
Singapore 6 April 2020 Nationwide
Thailand 22 March 2020 (Bangkok), followed by some other provinces and cities Bangkok and several provinces, including  Phuket, island of Koh Samui and Pattaya City
Viet Nam 31 March 2020 Nationwide, with social distancing measures in some provinces
Source: OECD Development Centre based on various national sources (as of 13 April, 2020)

One thought on “The economic implications of lockdown in Emerging Asia

Comments are closed.