Economic impacts of the COVID-19 crisis and containment measures

Abstract

This PT Policy Brief compiles information from various sources and original calculations on the economic impacts of the COVID-19 crisis to date. The analysis focuses on the containment measures implemented to curb the disease caused by the coronavirus, which at the same time generate substantial welfare losses. These losses are not limited to monetary terms; for example, previous deep recessions have also led to a clear deterioration in public health.

The overall picture is that the recession caused by the COVID-19 crisis—measured, for instance, by the number of furloughed workers—has been exceptionally rapid compared to the 2009 financial crisis. We present a model suggesting that with short-lived containment measures, this sharp economic downturn may remain temporary. However, if the measures persist for a longer period, the recession may also become prolonged, as many firms would be forced to cease operations permanently.

It is therefore important to provide broad support to firms and the unemployed to prevent this outcome, especially if the containment measures last for several months.

1. The COVID-19 crisis has caused an exceptionally rapid recession, reflected for example in the number of furloughed workers.
2. According to our calculations, the recession would, for now, remain short-lived.
3. However, if containment measures persist for a long time and/or support to firms is insufficient, the recession will become prolonged, as many firms would go bankrupt.
4. Thus, containment measures entail genuine welfare losses, which in previous deep crises have also manifested in deteriorating public health.

(AI translation)

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