US and UK take riskier path in dilemma over reopening economy

Linda J. Dodson

TOKYO/PARIS/WASHINGTON — Countries around the world are caught on the horns of a dilemma: prioritize reopening the economy or continue restricting activity to limit the spread of the novel coronavirus.

A quick economic restart could brighten the picture for business, but risks prolonging the pandemic.

The U.S. and Europe, which have chosen the first option, are struggling to contain the virus. They will be forced to reintroduce harsher limits on activity if they are hit by a second wave of infections.

To analyze the connection between restrictions on economic activity and business sentiment, Nikkei used an index created by the University of Oxford that indicates the stringency of lockdowns. The index measures strictness from zero to 100, using nine variables such as whether a curfew is in place, restrictions on business activity and closure of public transport. The higher the number, the tougher the restrictions.

The Purchasing Managers’ Index, which reflects business sentiment, shows a correlation between businesses’ optimism and the harshness of the lockdowns. A low PMI points to a stricter lockdown, which, in turn, leads to higher unemployment and a stagnant business environment.

The stringency index for France and Italy topped 90 by early May, higher than in other large economies. On March 17, France issued a stay-at-home order. The country’s PMI dropped to around 11 in April, an all-time low.

Germany and France loosened strictures on economic activity after the number of new infections per 100,000 people dropped to around one. That approach has largely brought new infections under control.

Countries that have introduced tough restrictions share broad public support for the measures.

French President Emmanuel Macron’s approval rating stood at 43% in March, up 11 percentage points from the previous month, according to French polling company Ifop. Citizens seem reassured by the government’s policy of paying compensation for lost wages. German Chancellor Angela Merkel has also seen her approval rating rise sharply, as she is credited with showing leadership in containing the virus.

For China, which reopened its economy earlier than other countries, the PMI neared 50 in April. But after infections in northeastern provinces began rising in early May, the stringency index began to climb again, risking further harm to the economy.

In contrast, limits on economic activity have been looser in the U.S. because its federal system gives states a relatively larger say over policy; the central government does not have the authority to impose a nationwide lockdown. The courts can also intervene. On May 13, for example, the Supreme Court of Wisconsin overturned the state government’s stay-at-home order.

The U.S. and U.K. began resuming economic activity, even as the number of new daily cases was still above 6 per 100,000 people. The two countries are still struggling to contain the coronavirus, while the decline in business sentiment has been relatively modest. The boom in e-commerce has also helped companies such as Walmart.

The total number of infections continues to rise in the U.S., although new daily infections appear to have peaked. Current active cases — the cumulative number of infections minus deaths and recoveries — exceeds 1.2 million, more than three times as many as in early April, when daily new infections were at their peak.

In Britain, which is gravely concerned about a possible second wave of infections as the number of new infections began rising in late May, Andrew Bailey, governor of the Bank of England, suggested the central bank will not rule out setting negative interest rates.

If countries begin alternating between stricter and looser stay-at-home measures, economies will suffer and prospects for a definitive end to the pandemic will fade.

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