Growing evidence shows that economies that fought Covid-19 aggressively are bouncing back faster
- A growing body of evidence in the form of economic indicators suggests that the countries that locked down the fastest and in the most aggressive fashion at the start of the coronavirus pandemic are seeing the quickest economic recoveries.
- Germany and Vietnam are two economies that locked down rapidly early in the pandemic, and are already looking to be undergoing a rapid V-shaped recovery.
- The US, Brazil, and India are countries still battling with the consequences of their decisions in dealing with the Covid-19 outbreak, and are showing L-shaped improvements .
- A V-shaped recovery indicates a sharp rise back to a previous peak after a recession, while an L-shaped one shows a steep decline with a prolonged recovery.
- We spoke to some experts who shed light on countries that handled the pandemic well, and those that didn't.
- For more articles, go to www.BusinessInsider.co.za.
It is becoming increasingly clearer that countries that moved aggressively and fast on Covid-19 are coming out of it in stronger economic shape, according to a handful of economists Business Insider spoke to this week.
Germany and Vietnam, two nations that locked down swiftly early in the pandemic are already showing V-shaped recoveries, while nations that were slow to react - such as India and Brazil - look much more like to see slow, L-shaped returns to normal.
Markets Insider gained insights from some experts in the field.
German rebound on business conditions
The German response drew praise from around the world for its success in containing the outbreak through mass testing, a swift lockdown, an impressive healthcare system, and admittedly some luck.
It achieved low fatality rates by closely monitoring those who tested positive and kept intensive care units well under capacity.
All of this has contributed to a seemingly rapid bounce-back in the German economy in recent months. One widely observed early indicator for Germany's economic development is the Ifo business climate index.
The index rose to 86.2 in June from 79.7 in May - a 6.5 point increase, taking the index above the level seen in March.
Analysts at UBS said an assessment of Germany's business conditions in June reflects the muted impact of the pandemic on manufacturing firms, while the mood in services improved considerably.
- However, UBS highlighted that the German index still signaled a recession similar to the one seen in July 2009, but both manufacturing and services moved swiftly towards the "upswing quadrant" as a result of widespread easing of mobility restrictions.
UBS projects German GDP to have fallen 9.8% in the second-quarter of the year, and to rebound by 6.3% in the third-quarter. The investment bank predicts overall GDP to fall by 6.3% in 2020, and to rise by 4.6% in 2021.
Despite a sharp projected increase next year, UBS does not expect Germany's end-2021 GDP level to be the same as that seen during end-2019.
But in comparison to other economies, it is far ahead of the line.
Prompt harsh restrictions in Vietnam
Further away in the East, Vietnam had eased social distancing restrictions for most parts of the country on April 23 - far earlier than virtually all other economies except China, which as the first country hit by the virus, was able to ease lockdowns earlier.
Domestic flights resumed, but international travel was still held back.
Vietnam, the Southeast Asian country known for its tourism, had imposed harsh restrictions in the early phases of the spread of the virus.
Its willingness to reimpose restrictions if Covid-19 cases jumped and an increased confidence from a high level of testing might have supported its decision to ease the economy, UBS said.
Vietnam's real GDP slowed from 7% in the last quarter of 2019 to 3.8% in first-quarter of 2020.
In recent years, mortgage lending was a major contribution for Vietnamese banks' loan growth and profitability, according to UBS.
Its property market seems to be recovering quickly and the cash flow of key developers is still sound.
- L-shaped recoveries for Latin America, the US, and India
Countries such as China and Korea that managed to prevent the virus from erupting into full-blown outbreaks will find more success in sustaining their respective economic recoveries following the initial bounce, said Miguel Chanco, senior Asia economist at Pantheon Macroeconomics.
"At the other end of the spectrum, India's clear mismanagement of the Covid-19 outbreak is an example of what not to do in a crisis situation," he said, adding that its recovery will be the most "L-shaped of the major economies in Asia."
The early stages of recoveries in Latin American economies have been "lackluster," while those in US virus hotspot states have stalled, according to Simon MacAdam, senior global economist at Capital Economics.
"The euro-zone generally confronted the virus forcefully, and the region's recovery appears to be one of the strongest," MacAdam said.
He pointed out that emerging economies in Europe also dealt with the virus well, with only a few cases rising in Bulgaria.
- "While Jair Bolsonaro's personal ambivalence on the matter of lockdown is well-reported, Latin American economies in general weren't especially slow or lax about going into lockdown," he said. "And yet this region's recovery is the most lackluster in the world."
The Nordic economies that were "forceful on the virus," did not necessarily see good economic performance, but activity in their economies are among the closest to pre-virus levels, MacAdam said.
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