Reasons for the relative performances of countries in managing Covid-19

Chart 1 is a graphical representation of what everyone refers to as the lives versus livelihoods trade-off. Last week, we talked about the cumulative Covid-19 death toll as a measure for a country’s effectiveness in protecting lives. Singapore ranks highly in this regard, at 10 out of 183 countries, while Malaysia is at 87th position. We have also explained why we used cumulative deaths (since the start of the outbreak) instead of comparing the current death toll between countries — because the timing of the outbreak cycles is quite different for each country. Some suffered worse waves earlier in the pandemic, others later. Hence, to accurately gauge how well countries have handled the pandemic in totality, we need to use the cumulative death toll. And yes, the right parameter is cumulative until the end of this global pandemic.

For the same reason, to measure how effectively countries protected livelihoods, we analysed their nominal GDP (in local currencies) as well as change in the number of people employed (Chart 2) over a longer time period for a more complete picture. We compared the latest International Monetary Fund (IMF) GDP forecasts for 2021 against the actual economic outputs in 2019 (pre-pandemic).

There is no precise parameter for livelihood. Nominal GDP and the number of unemployed are the closest approximations, though we understand that the pandemic has disproportionately hurt the incomes of low-skilled workers, those earning day wages and dependent on commissions as well as the employment prospects of youths. Indeed, this trend is observed in both advanced and developing countries.

Synchronised global recession

The IMF estimates the world’s economic output fell 3.2% in 2020, the most in more than seven decades. China, which was the first country to be hit by Covid-19, saw the steepest contraction in 1Q2020 while for the rest of the world, the worst came in 2Q2020. The actual depth of the recessions suffered by each country, however, differs widely, depending on a combination of factors. We will elaborate on this a little later.

Of note, the worst of the GDP decline was seen in 2Q2020, even though many countries have reported worse waves of infections since then. In other words, the economic impact got smaller with successive waves. We attribute this to governments and businesses gradually adapting to the new operating conditions. We were learning to live with the virus.

For instance, mobility restrictions became more targeted instead of wholesale lockdowns while work-from-home productivity improved with time as companies and workers fine-tuned the infrastructure and process of remote working. Factories learnt the best shift-rotation combination while maintaining physical distance on manufacturing floors, retailers gradually onboarded e-commerce platforms and so on and so forth.

Effectively containing outbreak early protects both lives and livelihoods

Statistics show that countries that successfully contained the outbreak early have fared comparatively better in terms of protecting both lives and livelihoods. Because the outbreak was better contained, stringent mobility restrictions were relatively short, in terms of duration (see Chart 3). As a result, the impact on economic activities and unemployment too was comparatively modest.

For instance, China, Taiwan, South Korea and Australia are on track to report positive GDP growth over the 24-month period (comparing forecast 2021 GDP against the actual output in 2019), have comparatively low resulting unemployment and, at the same time, also low deaths per million people (as shown in Charts 1 and 2).

By comparison, countries that have reacted slower or less forcefully at the outset have suffered more in terms of number of deaths, as the sick quickly overwhelmed healthcare systems that were unprepared for the scale of the outbreak.

A case in point: The UK, Italy, Spain and France all reported comparatively high death tolls. These countries also suffered some of the steepest economic contractions in 2Q2020 and have subsequently required more stringent mobility restrictions for longer to bring the situation back under control. There are also those that chose to keep mobility restrictions at a minimal — for example, Sweden, which attempted to achieve herd immunity through infections, and the US (under the Trump administration) — which mitigated the economic impact somewhat, but at the cost of more lives lost.

Structure of economy is a key factor in depth of recession

Apart from how forcefully and effectively governments responded to the outbreak in the early stages, the underlying structure of economies also played a huge role in determining the magnitude of the initial economic shock and overall damage.

For instance, the economies of countries heavily dependent on travel and tourism were badly affected as international travel ground to a practical halt. World trade volumes too fell sharply as countries closed borders to contain the outbreak, disrupting global supply chains and logistics.

Thus, countries in which exports accounted for a larger percentage of their economies were clearly worse off. In Europe, Spain and Italy were among the worst-hit economies — both countries have relatively high exports-to-GDP and comparatively weaker finances. And countries heavily dependent on both tourism and exports like Thailand were, not surprisingly, also hard hit (see Chart 5).

Singapore’s open and trade-dependent economy contracted sharply, as did Malaysia’s. The former, however, managed to buffer the impact with several massive fiscal aid packages — totalling some $86 billion (excluding loans and guarantees) and among the highest in the region in terms of percentage of GDP, at 18.4%. The huge fiscal stimulus — including cash payouts to all Singaporeans, support for businesses and wage subsidies — was enabled by its strong financials (the large pool of accumulated fiscal reserves and zero public net debts).

Malaysia, on the other hand, entered the pandemic on already-weak financial footing, no thanks to years of profligate spending and high public borrowings. The country simply could not afford to be as generous with cash handouts — its comparative fiscal stimulus was much smaller at only about 5.2% of GDP. Instead, the country relied heavily on blanket loan moratoriums to help alleviate the short-term liquidity crunch. See Chart 6 for a comparison of how much countries spent on fiscal aid stimulus during the pandemic.

Conversely, countries in which domestic consumption accounted for a larger percentage of economic activities were less affected by border closures. The US, where domestic consumption accounts for more than two-thirds of economic activities, is a good example, and even more so, after the country pushed out massive fiscal payouts that substantially boosted household disposable incomes and excess savings.

Ability to spend big on fiscal stimulus will buffer the economic impact

Without doubt, the ability to spend big on fiscal relief and stimulus makes a huge difference in terms of protecting jobs and livelihoods. A case in point: The IMF, in its latest World Economic Outlook report, kept global GDP growth for 2021 at 6% but with notable offsetting revisions.

Specifically, growth in developed economies was revised up by 0.5%, on average. Both the US and UK are now expected to grow by 7% this year, reflecting upward revisions of 0.6% and 1.7% respectively, from the forecast made in April 2021. With this, GDPs for both countries are therefore forecast to exceed their pre-pandemic levels in 2019. Two other countries that saw big revisions to their 2021 GDPs — Canada (+1.3% to 6.3%) and Australia (+0.8% to 5.3%) — also implemented huge fiscal packages.

On the other hand, GDP for emerging and low-income developing markets have been marked down by an average of 0.4% from April’s forecast, including a downward revision of 1.1% for developing Asia. India saw the biggest cut of 3% to its 2021 growth forecast while GDP growth in Asean-5 (Indonesia, Malaysia, the Philippines, Thailand and Vietnam) was lowered by 0.6%.

We have written previously on how the developed world has effectively socialised private-sector debts in this pandemic — resulting in huge excess household savings as well as lower-than-average corporate bankruptcies. For example, the US’ unprecedented fiscal relief packages amounted to some US$5.33 trillion or $7.2 trillion (excluding loans and grants), or more than 25% of GDP. Generous unemployment benefits supported consumer demand during the pandemic and will further spur consumption on reopening. Massive financial support also allowed businesses to restart quickly by protecting productive capacities.

In fact, more fiscal boost is anticipated in the US, beyond the reopening, including the US$1 trillion infrastructure and US$3.5 trillion healthcare and family bills. Similarly, more fiscal boost across Europe is expected from projects financed by the Next Generation EU fund and long-term budget (2021-2027), worth over €2 trillion ($3.2 trillion).

Rich-poor divide driving two-speed global economic recovery

So, while the timing of the recession was quite synchronised around the world, the economic rebound that is now unfolding is very much a story of a two-track recovery. We are seeing more serious setbacks in parts of the world with the rapid spread of the Delta variant. The biggest differentiator is the pace of vaccination.

For some countries that had done very well in containing the virus so far, the issue is a lack of urgency in vaccinating their people. And the resulting slow vaccination rollout is now creating negative repercussions. For instance, major cities in Australia and Asia have, in recent weeks, reverted to more stringent mobility restrictions.

But the biggest reason by far is the massive inequality in terms of vaccine distribution. According to the IMF (as at July 19), 40% of the population in advanced economies have been fully vaccinated compared with 11% in emerging economies and just 1.2% in low-income developing countries.

So while rich countries such as the UK and US — where more than 69% and 57% of the population respectively have received at least one dose of vaccine — are leading the global economic recovery, many poorer nations are experiencing slow vaccination rollouts that are hampering efforts to reopen their economies, delaying the recovery process and, at the same time, straining the public healthcare system and resulting in a rising death toll.

In short, there is a stark division between the rich and poor countries when it comes to vaccine distribution and the ability to spend on fiscal support — to blunt the negative impact on the economy and chart a faster and sustained recovery. As a result, the GDPs of advanced economies are expected to recover to pre-pandemic projections by 2022 while a significant gap remains for emerging economies and low-income developing countries.

In conclusion

From the brief discussion above, it is quite clear that no single factor is solely responsible for how effectively countries handled the pandemic, in terms of either the loss of lives or livelihoods.

Obviously, the ability to minimise the loss of lives is a function of the quality and capacity of each country’s public healthcare system as well as containment and mitigation policies that were initiated by the government. The evidence shows that early and forceful containment measures limited both the loss of lives and livelihoods. But ultimately, their effectiveness was determined by the people — their trust in authorities, cultural and political backgrounds, attitudes and behaviours. In short, the ability to minimise the loss of lives and livelihoods is a function of both the leadership as well as the people’s sense of self-preservation, self-prevention and self-discipline.

The structure of the economy — such as the degree of reliance on trade and exports, travel and tourism, the size of domestic consumption, the extent of digital infrastructure and the people’s embrace of digitalisation — is a major factor in determining the depth of the economic impact. But this can be buffered by massive fiscal and monetary stimulus.

However, this ability to mitigate the economic damage — even if the outbreak was handled badly in terms of lives lost — differs greatly between the rich and the poor countries. In effect, this means that for the rich developed countries, there is a choice to be made between lives and livelihoods. But many poorer countries may not even have the luxury of making that same decision.

Only an elite few central banks in the world can “print money” and few, if any, emerging and low-income developing countries can run the kind of record budget deficits and public debt-to-GDP ratios that we see in major developed economies, without triggering loss of investor confidence, capital flight, domestic currency devaluation and runaway inflation. And rich countries can afford to hoard more vaccines than needed by their entire populations — some by several times over. That is the reality.

Similarly, the trade-off between lives and livelihoods is easy for the wealthy — particularly given rising asset prices (stocks, bonds and properties) — and those who remain employed throughout the pandemic. On the other hand, small proprietors whose businesses have been severely disrupted and people who have lost their jobs or depend on hourly pay and youths who are new to the job market are suffering.

Because the gains in wealth far outweighed the losses, the overall outlook for the global economy is improving — and it is continuing to drive the rise in stock markets. This is also the reality. The effects of wealth inequality, globally, are startlingly clear and if anything, the Covid-19 pandemic has only further widened the chasm between the haves and have-nots.

To summarise all of the above, the outcomes on lives and livelihoods for each country are dependent on many factors:

• Some are dependent on how the pandemic is managed;

• Others are exogenous, like the structure of the economy (for example, whether it is export/tourism dependent and so on);

• Yet others on how much the countries can afford to spend by printing money and/or borrowing; and

• Lastly, and perhaps most importantly, on its citizens, the level of self-reliance and self-discipline.

The charts we presented are obviously only two-dimensional. Therefore, they cannot possibly capture all the variables at play — but they do point to those expected relationships. To better visualise all the above-mentioned variables and outcomes, we categorised the select countries into a table.

High mobility, low deaths: These countries have performed well economically, except for Thailand. The common thread is that they contained the outbreak early through stringent mobility restrictions and, as a result, have been able to relax the measures much sooner. However, some are now at risk of a Covid-19 resurgence, owing to low vaccination rates, and are reverting to more stringent restrictions. Many have also spent aggressively on fiscal stimulus. China is a notable exception — the government has spent very little in terms of fiscal stimulus compared with other major economies. Yet its economy is one of the few that registered positive growth in 2020 and is expected to expand by a further 8.1% this year.

High mobility, high deaths: A trade-off that favours livelihoods. We see here, generally less stringent mobility restrictions but also a higher number of deaths. Most have fared relatively well economically except Indonesia, which lacks the resources for this strategy. It requires big spending to buffer the economic impact but, more critically, a rapid vaccination rate to counter the higher infections with less restrictions.

Low mobility, low deaths: A different trade-off that favours lives more — with more stringent mobility restrictions but also fewer deaths. But the economy pays the price.

Low mobility, high deaths: Less forceful restrictions at the outset meant more deaths and subsequent low mobility as measures needed to be tightened to regain control. As a result, the economy suffers more, by comparison, and requires huge fiscal and monetary support. However, these countries may well be the best performers going forward, as they have high vaccination rates — the tool to enable a faster reopening — and better growth prospects. A case in point: Mobility improved significantly in July but the number of infections and deaths stayed relatively low.

Increased mobility with low vaccination: The worst trade-off. Reopening and allowing increased mobility before vaccinating a sufficient percentage of the population will result in a high number of deaths.

Looking at the table, we are concerned for Taiwan and especially, Indonesia, the Philippines and Thailand. Slow vaccination rollout is resulting in a renewed surge in infections and deaths. Mobility likely needs to fall further — Taiwan has already increased the stringency of movement restrictions in July — and growth may have to be revised down.

On the other hand, Singapore may be too restrictive relatively speaking, in comparison to other countries, given its vaccination rate. But being a rich country with a small population, it is probably right to value lives highly. The economy should reopen sooner rather than later.

Malaysia is aggressively vaccinating its population and will hit 50% fully vaccinated by end-August. On reaching this milestone, the country should relax mobility restrictions quickly and allow economic activities to resume.

We know everyone is blaming others for the loss of lives and livelihoods. It is understandable and yes, often justified too. Ignorance is bliss. Often, the more you understand, the less the clarity. We wrote this piece for those who, like us, prefer to seek more knowledge and understanding, acknowledging, however, that knowledge itself is not wisdom. Life itself is a discovery process. It is far easier for a child to “discover truth”.

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Photo: Bloomberg