Does a lockdown harm the economy?

The political right has principally argued against lockdown on the grounds that it harms the economy. Sweden has often been the target of their praise, as an example of a country which took the sensible route and did not panic, allowing the economy to largely carry on as before with people staying safe by following common sense. We now have enough data to compare Sweden to similar countries with different policies.

Denmark enacted a strict lockdown, seeing an initial sharp drop in consumption with credit card volumes dropping over 20%.

Sweden did not have a formal lockdown but still saw a drop of 15% in card payments. It was notable that photos in the press often showed happy Swedes drinking in Stockholm, but even without a lockdown the data showed that people’s behaviour did indeed change with many scared to go to restaurants and shops.

Where the paths of the two economies have really diverged is in the aftermath.

Denmark with its early and strict lockdown was then able to be one of the earliest countries to relax measures. They have seen a virtually complete recovery in their economy with retail sales already above last year’s levels and even restaurants only 10% lower.

Sweden, by contrast, has seen very little bounce at all. This chart shows how household consumption is stuck around 10% below the levels of last year.

Credit card payments compared to last year also show a huge gulf between Sweden and its neighbours Denmark and Norway, as this chart from EVA shows


The obvious conclusion is that the Swedish experiment has not only left them with ten times the deaths of their neighbours (and still rising), but also the continued high prevalence of the virus has left the population scared and lacking confidence to go about as before. Whilst their neighbours can relax and go back to normal, the Swedes are left in a perpetual semi-lockdown state.

As we look around the world, this is great news for countries that have pursued timely and effective lockdowns. It is not good news for the US which opened the economy without controlling the virus. The evidence from Sweden is that this will lead to a prolonged and deeper recession. For the UK, we are relying on Boris’ gamble that we will not see a resurgence of the virus despite our lack of a viable test and trace process.

Lockdowns have not depressed the economy. The virus depressed the economy and lockdowns are the means to get it back on track.

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