The Paradox of COVID-19 Prevention Measures: "The More Actions Taken, the Deeper the Recession"

[Image source=EPA Yonhap News]

[Image source=Reuters Yonhap News]

[Asia Economy Reporter Jeong Hyunjin] "Recession is a necessary health measure to prevent the spread of the novel coronavirus disease (COVID-19)." - UK think tank Centre for Economic Policy Research (CEPR)

As the world implements stringent measures to curb the spread of COVID-19, the depth of the recession paradoxically deepens. To block transmission, high-level quarantine measures restricting movement must be enforced, but these in turn restrict economic activities, accelerating the recession.

CEPR recently published a report titled "Mitigating the Economic Crisis Caused by COVID-19: Act Fast and Do Whatever It Takes," featuring an analysis by Pierre-Olivier Gourinchas, Professor of Economics at UC Berkeley, California. He stated, "Efforts to flatten the epidemic curve exacerbate the recession from a macroeconomic perspective." As part of health measures to prevent COVID-19 spread in various countries, social distancing, school closures, work stoppages, and expansion of remote work are underway, which economically cause a 'sudden stop' in economic activities.

Professor Gourinchas pointed out that during the 2008-2009 global financial crisis, "the unemployment rate was only about 10%, whereas with COVID-19, effectively 50% or more of workers cannot go to work," indicating that "the economic impact is relatively greater." According to the graph he presented, the more confirmed cases are suppressed by stringent government quarantine measures, the deeper the recession becomes. Conversely, without quarantine measures, the slope of the curve is relatively gentler.

However, Professor Gourinchas stated, "It is inappropriate to debate between losing lives and rising unemployment," and predicted, "Even if quarantine measures are not taken, the pandemic situation caused by inadequate health authority actions will increase uncertainty, leading households and businesses into panic, and recession will occur in any case." He added, "Fortunately, economic policy can decisively act as an 'economic intensive care unit,' a bed, and an oxygen respirator."

Experts emphasize that despite recession concerns, prioritizing quarantine is essential in this paradoxical situation. The more governments close borders and restrict movement to prevent COVID-19 spread, the more severe the economic fallout becomes, but it is necessary to accept this for future economic recovery.

Similar voices are emerging within the U.S. Federal Reserve (Fed). According to foreign media on the 22nd (local time), James Bullard, President of the Federal Reserve Bank of St. Louis, described the current situation of rising unemployment and production decline as a "massive investment in U.S. public health." While recession generally refers to contraction in economic activity, he argued that the current situation should be seen as laying the foundation for a rapid economic rebound.

Bullard predicted that due to the U.S. shutdown, second-quarter GDP could decrease by 50%, and unemployment could soar to 30%. He emphasized that economists and policymakers need to change their perspective at this point, stating that rising unemployment means government stabilizers are working, and added that shutdown measures in various countries are essential to shorten the pandemic. Foreign media evaluated Bullard's view as "a unique perspective amid growing global anxiety."

Economists say economic policy is essential to endure the current situation. Professor Gourinchas stressed the need for central banks to provide emergency liquidity to financial markets and for active fiscal policy, stating, "It is important to clarify what economic policy can and cannot do. It is impossible to completely eliminate the recession. The recession will occur, and it will be large, but we hope it ends in a short period." Jason Furman, Harvard University professor and former economic advisor to U.S. President Barack Obama, described the economic impact of COVID-19 as a "hurricane"-level shock and suggested that large-scale fiscal spending to preserve jobs and implement economic policies is necessary so that when the COVID-19 spread is controlled, the economy can rebound.

This content was produced with the assistance of AI translation services.