As the lockdown in Britain remains in place for at least another three weeks without a clear exit strategy, economists said the country’s economy could face the deepest recession in 100 years.
The British government announced Thursday that the current restrictive measures that aim to contain the spread of the novel coronavirus will remain in place for “at least three weeks”.
A big question arose over when or how the restrictions will be relaxed. “Uncertainty around the length of the lockdown is likely to be a key factor behind the wide range of GDP forecasts for 2020,” said Andrew Goodwin, chief UK economist at Oxford Economics, in a research paper published Friday.
He explained that the estimates of the scale of the decline in Britain’s gross domestic product (GDP) in the first half year in 2020 are very sensitive to the duration of the lockdown.
In the latest forecast, which assumes the lockdown remains in place until mid-May and is then eased gradually, Goodwin expected the country’s GDP to fall by 5 percent in 2020. The last time the economy suffered a recession on this scale was 1921.
The National Institute of Economic and Social Research (NIESR) also said the “once in a century event” poses major threat to Britain’s economy growth, and the lockdown is causing the largest contraction in economic activity since 1921 earlier this month.
NIESR projected in its latest paper that Britain’s economy could see growth shrink by 5 percent in the first quarter of 2020, and if a lockdown continues, by around 15 percent to 25 percent in the second quarter.
“The forceful impact of COVID-19 and the global lockdown has thrust the economy into unknown territory where we could see GDP declining at a record quarterly rate,” said Kemar Whyte, senior economist of macroeconomic modelling and forecasting at NIESR.
Goodwin noted that the introduction of stricter social distancing measures by British government in late March will cause substantial disruption to activity in the second quarter, and the output could be around 10 percent lower than the last quarter in 2019.
According to the survey published by Office for National Statistics (ONS) on Thursday, around one quarter of businesses in Britain reported a temporary closure or trading pause between March 23 and April 5, and of the other three quarters that continued to trade, 38 percent reported that turnover was substantially lower than normal.
NIESR pointed out that the lockdown reduces overall activity by around 20 percent in every month of their operation with larger effects possible in other sectors, particularly if the lockdown measures are prolonged.
In a scenario that a three-month lockdown followed by three months where the restrictions are partially lifted, the Office for Budget Responsibility (OBR) warned earlier this week that Britain’s economy could decline by 35 percent in the second quarter.
“Our logic for a shorter lockdown is partly based on the experience of China, where lockdowns in some regions started to be relaxed after three to four weeks, while the lockdown in Wuhan came to an end 11 weeks after it was imposed,” said Goodwin.
“Our downside scenario, which assumes much longer lockdown than our baseline forecast, also results in a double-digit drop in GDP in 2020,” he added.
However, economists still believe Britain’s economy will bounce back quickly in 2021.”Instant and significant recovery remains a distinct possibility if the spread of the virus comes to halt quickly,” said Whyte.
“We forecast a strong recovery in 2021 based on a resumption in discretionary spending, supported by low oil prices and monetary and fiscal stimulus,” said Goodwin, expecting Britain’s GDP to return to its pre-coronavirus level by mid-2021.