Why lockdown easing can’t bring a quick economic boost

Whether they have already eased their lockdown restrictions (as in Germany,) are planning to (in France, Italy and Spain), or are delaying for the moment (in the U.K.), European governments are all saying the same thing: from an economic viewpoint, easing can only make sense once…

they are sure that the outbreak’s peak has been reached and the situation is under control. And, in any case, the return to (eventual) normal will be gradual and slow.

That is why even if stores reopened in Germany last week, Chancellor Angela Merkel is warning the country’s states not to rush into wider easing. That is why Prime Minister Boris Johnson, in his first speech on returning to the job after a three-week interruption due to his own coronavirus infection, starkly “refused” on Monday to be rushed into an early lockdown exit by the country’s many business lobbies.

And that is why, even as they are taking the first steps toward the end of strict lockdowns, governments such as France or Italy warn that a return to normal isn’t for tomorrow — Italy has in fact extended school closures until September even as it allowed factories to resume production.

There is a good reason for government caution. As Johnson warned, a second spike of the virus could bring an economic catastrophe much worse than the one Europeans are facing at the moment. Health considerations will prevail for many months over business and economic ones, but it is not really a “choice” that governments face: a mistake on the health front could bring economic mayhem.

On the other hand, governments should also explain that lockdown easing will bring a limited economic upside in the short term, for two reasons. The first is that as long as fear of contagion dominates, customers won’t rush to spend wildly in their favorite and now reopened stores.

The second is that they might not be in the mood to spend in the first place. With millions swelling the unemployed ranks, businesses shattered by the crisis and major uncertainties about the immediate future of the economy, saving is the first reflex, and caution is the word of the moment.

There may be what economists are calling “pent-up demand” in some sectors. Spending long delayed by the lockdowns will spike — say on the kid’s bed or the new dishwasher you badly need. But overall the psychological impact of the crisis will dominate for weeks.

The predictably slow return to normal is…

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