Which country's response to COVID-19 is the best?

Sayini Sutharshan

Lockdown restrictions around the world are lifting. Some countries have even dealt with COVID-19 - New Zealand, for example, has now been declared 'virus-free'. However, the economic damage of the coronavirus remains and continues to cause tremendous losses to firms, businesses and families all across the world. As society is slowly transitioning back to normality, I thought we could analyse how different countries are responding to this economic damage and discuss their benefits and drawbacks.

The UK has taken unprecedented steps to sustain its economy, from the £330 billion loan package for supporting small businesses to the interest rate being cut to 0.1% - an all-time low for the UK. Despite this, the size of the UK's response to the economic damage is relatively small, in comparison to other countries who already had greater levels of income support available prior to the outbreak of the virus.

An additional concern for the UK government is their level of spending. With more people claiming benefits, there is a greater financial burden on the government as they may not be able to continue to finance these grants if GDP remains at such a low level, like in April when GDP fell by 20.4%. The UK's efforts to rescue their economy is estimated to cost 15% of GDP.

Another country which took unprecedented action to tackle the economic devastation of COVID-19 is the US. The Coronavirus Aid, Relief, and Economic Security (CARES) Act, also known as the $2 trillion stimulus package, was passed in March 2020 to aid public services, small businesses, individuals and other groups through the crisis. 30% of the package is devoted to helping individuals and families by providing a direct deposit of $1200. Although this will offer assistance to some degree and it is the largest proportion of the package, it can be argued that it is not adequate, especially since services in the US, like healthcare, are privatised and consequently expensive. 

A country's fiscal response to COVID 19 that has been urged to be used as an example for other countries is Germany's economic response. The director-general of the International Labour Organisation (ILO), Guy Rider, stated that Germany’s ‘Kurzarbeit’ programme is an example to other nations to deal with the economic loss of the coronavirus pandemic, particularly in regards to their approach to unemployment. For workers that are sent home or whose working hours are drastically cut, 2/3 of their wages are paid, which supports them whilst relieving the financial burden from employers. This scheme was utilised during the financial crisis of 2008-9 and is said to be a key reason for Germany's quick recovery. Another reason for Germany's success with coping with the economic damage of COVID-19 is that the German healthcare system was already efficiently run before the outbreak of the coronavirus, resulting in it currently not being as overwhelmed as other healthcare systems. Hence, the government can focus its fiscal policies and spending on other economic concerns, such as unemployment.

The UK and Germany's GDP fell by approximately 2% in the first quarter of 2020 whilst the GDP of the US fell by 4.8% in the first quarter, indicating that the success of their efforts depends on other factors, such as consumers' and investors' level of confidence, despite the size of each country's response to the pandemic. Although governments have lowered interest rates and injected a vast amount of money into their economies, a liquidity trap may occur if consumers' do not have the confidence to spend, thus the economic response itself isn't the only factor that determines the success of a country's economic response to the coronavirus pandemic.

Links to find out about other countries’ policies to tackle COVID-19 :

https://www.imf.org/en/Topics/imf-and-covid19/Policy-Responses-to-COVID-19

https://www.bruegel.org/publications/datasets/covid-national-dataset/