The economic cost of coronavirus lockdowns

▪ Widespread lockdowns and social distancing in economies affected by the coronavirus outbreak are set to cause a massive negative short‐term impact on consumer spending and GDP. ▪ A large chunk of consumer spending is discretionary and so is very sensitive to being postponed or lost completely due to quarantines and social distancing. ▪ The early evidence from China supports the idea that up‐front effects will be large, with retail sales down 20% y/y in January–February and industrial output over 13% lower, thanks to widespread factory closures. ▪ We estimate that a three‐week lockdown affecting 50%–90% of a population would cut consumption in the three–month period featuring such a lockdown by 5%–8%, a six‐week lockdown by 9%–16%, and a 12‐week lockdown would slash it by 18%–32%. ▪ Full‐year effects depend on how quickly postponed consumption revives as outbreaks come under control. But even quick recoveries imply big full‐year losses: An initial 18% slump in consumption would still imply a full‐year loss of 9%, even if spending recovered to pre‐pandemic levels in four quarters. If recovery took eight quarters, the full‐year loss would be an enormous 14%.