Implementing a worldwide, synchronized, two-week long strict quarantine could end the COVID-19 global pandemic. About 99% of infected individuals will show symptoms within the two weeks. Afterwards, healthy individuals could re-join the community, while sick ones would remain isolated until they stopped shedding the coronavirus. The quarantine would have a positive impact on the economy since it would be short, fully anticipated, and would restore confidence.
The problem, of course, is that it’s completely unrealistic.
Such a high degree of cooperation is unfeasible because countries would have an incentive to freeride on their neighbours’ efforts. In practice, governments are likely to continue to act in an uncoordinated manner, which could prolong the epidemic.
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Implementing a worldwide, synchronized, two-week long strict quarantine could end the COVID-19 global pandemic. About 99% of infected individuals will show symptoms within the two weeks. Afterwards, healthy individuals could re-join the community, while sick ones would remain isolated until they stopped shedding the coronavirus. The quarantine would have a positive impact on the economy since it would be short, fully anticipated, and would restore confidence.
The problem, of course, is that it’s completely unrealistic.
Such a high degree of cooperation is unfeasible because countries would have an incentive to freeride on their neighbours’ efforts. In practice, governments are likely to continue to act in an uncoordinated manner, which could prolong the epidemic.
Chart 1: Cumulated COVID-19 Cases, per Million People
Source: Haver, Macro Hive
Fortunately, even in a less-than-ideal world, countries have a range of options to limit economic disruptions. Early intervention is clearly the containment policy that is least disruptive, as shown by Singapore and Taiwan. These countries have very low COVID-19 incidence (Chart 1), and while Singapore saw a limited decline to its February manufacturing PMI, Taiwan’s actually increased.
Singapore and Taiwan’s proactiveness may not be replicable, however. Taiwan lives under military threat from China and, as a result, is on the lookout for any threat as well as being prepared for large scale public emergencies. Singapore is a small, efficiently run, and tightly controlled economy. Its epidemiological surveillance and contact-tracing capacity are second to none: a recent study estimates that on average the global ability to detect imported COVID-19 cases is only 38% of Singapore’s.
In addition, for most countries the window of opportunity for early intervention has already closed. But countries can still choose containment strategies with as little economic impact as possible. China, Korea, and Italy illustrate the different policymakers’ options.
China went for large-scale, strict quarantines that turned out to be very disruptive for its own and the global economies. China’s February manufacturing PMI collapsed to the lowest level in the history of the series and triggered a global panic around missing inputs that has yet to be extinguished.
With the epidemic under control, China has now shifted its policy stance toward economic normalisation, as shown by daily data on, for instance, intra-city travel. The Chinese government is likely concerned by the impact of continued production dislocation on the country’s reputation and long-term economic prospects.
Korea went for comprehensive testing and quarantines targeted at individuals at risk, rather than the blockading of large swaths of the country. This was less disruptive: Korea’s February manufacturing PMI is down by 1.5 points only, comparable to Singapore’s. On the other hand, Korea’s infection rate is higher than China’s.
Table 1: COVID-19 Dashboard, 9 March 2020
Source: Haver, Edelman Trust Barometer, Social Progress Index, Macro Hive
Korea’s strategy reflects different options and constraints than China’s:
• Korea has a stronger health system (Table 1) and a thriving biotech industry that could support a mass testing program.
• Koreans tend to trust their government much less than the Chinese do, and Koreans’ quarantine compliance has been an issue.
• Initially, Korea was unwilling to ban travellers from China, which some attributed to concerns over the reaction of its powerful neighbour in the North. As a result, the Korean government may not have believed itself to be in a position to impose strict quarantines on its own citizens.
Italy’s current containment strategy largely reflects it limited hospital capacity. While the overwhelming majority of COVID-19 carriers will experience only mild symptoms, up to 20% could require hospitalisation. Hospitals in the North of Italy, the epicentre of the epidemic, have been filled to capacity. Concerns that the capacity constraints could spread to the whole of Italy seem to be behind the decision to impose a country-wide quarantine, with Italians allowed to leave their home only for work or health reasons.
The quarantine is to remain in place until 3 April (3.5 weeks), which is well beyond the COVID-19 incubation period. However, Italians are still allowed to travel to work, and the extent of the quarantine remains unclear. In addition, Italy is a country with low trust in government, which suggests compliance risks.
Italy’s decision to implement a more limited form of quarantine than China could reflect the political costs to democratically elected governments of imposing strict measures. While Italy has implemented a number of mitigating measures such as tax cuts and credits, and moratoria on utility bills and debt, these won’t fully make up for revenues lost to the quarantine, especially in sectors such as tourism or hospitality. If the quarantine fails to produce results soon, voter support could be tested.
China, Korea, and Italy’s experiences suggest a global economic shutdown is highly unlikely. Governments are picking containment policies that take into account both risks to public safety and economic costs. In addition, voters in democratic countries are unlikely to support open-ended quarantines.
Dominique Dwor-Frecaut is a macro strategist based in Southern California. She has worked on EM and DMs at hedge funds, on the sell side, the NY Fed , the IMF and the World Bank. She publishes the blog Macro Sis that discusses the drivers of macro returns.
(The commentary contained in the above article does not constitute an offer or a solicitation, or a recommendation to implement or liquidate an investment or to carry out any other transaction. It should not be used as a basis for any investment decision or other decision. Any investment decision should be based on appropriate professional advice specific to your needs.)