We can take valuable lessons from the enforcement of COVID-19 lockdowns in Europe, which can be divided into the European Union (EU) and the eurozone.
By
ARI KUNCORO
·5 minutes read
KOMPAS/HERU SRI KUMORO
Ari Kuncoro
We can take valuable lessons from the enforcement of COVID-19 lockdowns in Europe, which can be divided into the European Union (EU) and the eurozone. This is because several countries have not adopted the euro currency.
First is the huge economic cost in the form of growth contraction combined with unemployment. Europe’s economic growth has taken a deep plunge to minus 12.1 percent in the eurozone and minus 11.7 percent in EU countries. The unemployment rate has also spiked by 2.8 percent and 2.6 percent, respectively. This worsens the region’s economic slump, which had contracted to minus 3.6 percent for the eurozone and minus 3.2 percent for the EU in the previous quarter.
The second lesson is the drastic rise of new confirmed COVID-19 cases after regional quarantines were either revoked or relaxed. In Spain, a second wave was triggered by behaviors with high health risk from activities often euphemistically labeled as “social gatherings”. Since last Friday in August, Spain has recorded 23,000 new confirmed cases. This has seemingly rendered one of the world’s strictest and most widely-praised lockdown policies meaningless.
Stars of European soccer clubs are confirmed to have COVID-19 after coming home from holidays. During a pandemic, both individual self-restraint and law enforcement by the government are important.
Impact of vaccine declaration
Right now, absolutist quarantines are no longer an option. After an economic free-fall in the second quarter of 2020, the regional director of the World Health Organization (WHO) warned that a second lockdown would be disastrous. This is in line with public policies in the UK, Spain and France. Sustainability of the healthcare system is cited as the reason. An economic slump and rising unemployment will eventually disrupt healthcare system funding.
As an initial move, a number of countries are announcing the latest progress in their COVID-19 vaccines’ clinical testing. This aims to provide a time horizon and hope so that the level of public expectation, an important part of the economy, can be managed.
The concept of vaccine declaration is drawn from the concepts of Lucas (1972) and Arrow-Debreu (1954). This is done to boost the economy before a vaccine is truly ready.
A box for a COVID-19 vaccine is displayed at an exhibit by Chinese pharmaceutical firm Sinopharm at the China International Fair for Trade in Services (CIFTIS) in Beijing, Saturday, Sept. 5, 2020.
The problem is that there remains a gap between the required clinical tests and when mass distribution of the vaccine can be done. To resolve this gap, more decentralized policies are needed, depending on local conditions and the sources of spread, such as health protocols in cafes, nursing homes and college dormitories.
In line with the hypothesis of forward-looking behavior (Lucas, 1978), an immediate effect of this policy is a rise in demand for rental scooters at rentals across European tourism spots.
In Indonesia, the announcement of a clinical trial for a COVID-19 vaccine happened in mid-July, for both a Chinese vaccine and a homegrown one. Please note that this was preceded by the relaxation of large-scale social restrictions (PSBB) in early July. Any impact is a combined result of these two incidents.
As of this article’s writing, Statistics Indonesia (BPS) has yet to issue any publication on the main aggregate variables of gross domestic product (GDP). Therefore, the impact of the vaccine announcement can only be traced from several initial indicators.
Among the clearest differences between July and August is the purchasing manager index (PMI) of the manufacturing sector. From May to June and July, the index had consecutive growth from 28.6 to 39.1 and then 46.9. However, it remained below 50, meaning there was no production expansion. The index was 50.8 in August, meaning that there was a start of expansion in August. The next initial indicator is from the Danareksa Research Institute (DRI) that recorded a consumer confidence index (IKK) increase for the first time in August since April 2020. IKK increased from 71.4 in July to 74.0 in August.
A doctor displays a vaccine for COVID-19 coronavirus at Padjadjaran university educational hospital in Bandung, West Java on July 6, 2020, in preparation for efforts to vaccinate 1,620 volunteers in the community next week.
The range of economic growth prospects in 2021, as delivered in the 2021 Financial Note, namely 4.5-5.5 percent, reflects the expected time for vaccination.
Early leverage
In contrary to a swab test, a positive result is highly expected in our economy in the remaining two quarters of 2020. The movement of several initial indicators has been consistent with a survey of consumers’ expectations in July 2020. PMI improvement indicates an improving manufacturing sector, which then indicates consumers’ improving interest in purchasing durable goods.
Despite still being in the pessimistic zone, Bank Indonesia’s index of durable goods purchases showed an improvement in July, especially with the income group of above Rp 4 million (US$271.02). The income group of between Rp 1 million and Rp 2 million also experienced significant improvement, followed by the group with income between Rp 3.1 million and Rp 4 million. Age-wise, the group of consumers above 30 years old had the biggest improvement of indices.
The range of economic growth prospects in 2021, as delivered in the 2021 Financial Note, namely 4.5-5.5 percent, reflects the expected time for vaccination. The government expected that vaccination will be carried out in January 2021, with a chance for it to occur in December 2020.
Durable goods purchases are especially linked to the sectors of manufacturing, trade, accommodation and restaurants, which account for 41 percent of GDP. These three sectors contracted by 6.49 percent, 6.71 percent and 22.31 percent, respectively, in the second quarter of 2020. For transportation, the latest data show that fuel consumption is at 122,000 kiloliters a day, below 7 percent of the normal conditions. Together with the transportation sector, these three sectors have a huge role of whether positive growth rate is attainable in the third and fourth quarters of 2020.
The consumption leverage of the lower-middle class depends highly on the absorption of funds in national economic recovery. Meanwhile, for the upper-middle class, excessive fear over the pandemic must be reduced. This can be done by, among other ways, reading positive news of the prospects of mass vaccination and health protocols in public transportation and tourism facilities, under the monitoring and enforcement of regional administrations.
ARI KUNCORO, Rector of the University of Indonesia.
/https%3A%2F%2Fkompas.id%2Fwp-content%2Fuploads%2F2019%2F11%2FAri-Kuncoro_75152262_1572887656.jpg){kind=logo}
