Exiting lockdown: ready or risky?

Hannah Smith considers the global state of lockdown and warnings that while Covid-19 has been dominating our thoughts, other worries are now resurfacing.

Most of the world’s largest economies are still in lockdown to safeguard their populations against coronavirus, although many governments are starting to look at easing restrictions. But who is really ready to do this and who’s not?

The asset manager Data Insights Unit and economist Piya Sachdeva looked at the global state of lockdown and compared it to the crucial ‘R’ number – this is the reproduction rate of Covid-19 and shows how many people one sufferer is likely to infect. Governments want the R number to be below one, so contagion risk is as low as possible.

It found that the UK, eurozone and US are in a position to ease lockdown with an estimated R of 0.6-0.8, but there is still a risk of a second wave of infection.

China and South Korea were the first to exit lockdown and now report R rates of zero; the last countries to do so could be Brazil, Russia and India, where the R rate is still above one, and these also could see a fresh wave of Covid-19 cases. In Brazil especially, “any signs of a premature exit from lockdown would be a major red flag,” says Sachdeva.

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Social distancing vs lockdown

Some countries have not brought in strict lockdowns but have introduced other social distancing measures. Sweden, for example, banned gatherings of more than 50 people, but left restaurants, schools and workplaces open. Along with Sweden, South Korea and Japan have managed to reduce their R without implementing ultra-strict lockdown measures.

Reflecting their early policy response and low death tolls, smaller European countries (Norway, Austria, Denmark and Czech Republic) eased restrictions in mid-April, opening schools and small shops.

Meanwhile, Spain allowed some factory and construction workers to return to work and Germany took some tentative steps only a few days later. Italy began to ease restrictions the week beginning 4 May and France has also outlined its exit plans. In the US, 29 states have now loosened restrictions, Sachdeva explains.

The UK and Russia are the latest to relax their lockdowns, both allowing workers in construction and parts of manufacturing to return to work. India and Japan are also extending lockdowns, but relaxing the rules for areas with fewer reported cases.

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A second wave?

The US and Europe should be careful about easing lockdown too quickly, Schroders warns, for fear of a second peak. President Donald Trump’s top coronavirus adviser Dr Anthony Fauci said the same this week, warning the US Senate that relaxing the rules too fast could lead to “more suffering and death”. He said it was important not to reopen schools to soon and take a “cavalier” attitude towards the risks of Covid-19 to children.

On Monday, the World Health Organization hailed falling infection and death rates in some countries, but warned nations to show “extreme vigilance” as they start to reopen their economies.

“The risk is lower for the US and Europe but still remains,” says Sachdeva. “These economies should be careful of exiting lockdown too quickly.”

In terms of what all this means for the global economy, Schroders concludes that the world is not out of the woods yet. “There is still a clear risk of a “W-shape” recovery, particularly if lockdowns are eased too quickly or lockdown fatigue sets in.”

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Covid-19 is not the only game in town

Brooks Macdonald’s investment strategist Matthew Cady says while Covid-19 has dominated everyone’s attention for the last few months, investors’ thoughts are now returning back to some of the issues they were concerned about before, such as the US/China trade war. Tensions appear heightened once more as President Trump tries to pin the blame on China for the pandemic.

“Financial markets have been uniquely focused to the daily drumbeat of Covid-19 case growth statistics, leaving traditional corporate, political and macro signals a distant second,” says Cady.

“However, as more and more governments outline their hoped-for planned exit strategies from the pandemic, so investors’ attention is also shifting its focus and risks which were present before the virus outbreak are now again competing for our attention. Chief of these currently are the risks around US-China tensions and the implications for global trade.

“Speculation the US might be looking at ways to punish China does not help the continued recovery in risk appetite that we have seen since early March.”