The COVID-19 crisis has rolled across the globe with impacts never seen before. To face the adverse effects on their economies and labour markets, governments have responded in an unprecedented way. To assess this response, we have analysed 10 European countries and the measures they have taken to mitigate the economic impact of COVID-19 on businesses and workers.
Authored by Bettina Schaller, the Head of Group Public Affairs at the Adecco Group.
It has taken less than six months for a previously unknown virus to change the world. Millions of people are facing the challenge of a lifetime. At home and at work our day-to-day existence has been turned upside down. While medical experts work tirelessly to understand and treat COVID-19, governments and businesses are also grappling with the economic consequences. The pandemic has forced governments around the world to heavily interfere in their economies and labour markets.
We wanted to understand which government responses lead to the best economic outcomes. This isn’t easy because the situation is evolving, with different regions at different stages of the pandemic and facing varying levels of exposure. As China and Asia are resurfacing, the effects of the virus are slowly but surely hitting the Americas – with different magnitude depending on the country. In Europe, countries such as Austria and Switzerland are beginning to ease their lockdowns, while Italy and Spain are being more cautious.
Nevertheless, macroeconomic analysis of 10 European countries gives a sense of which measures have been successful and which have not. We looked at GDP, unemployment, stock market levels, economic sentiment and purchasing intentions to estimate the scale of the economic cost of COVID-19. The results, with the caveat that they paint the picture of mid-April 2020, were informative.
The stimulus package is key
We looked at the link between the range and number of policy measures and their economic impact – and saw none. As often, quantity and quality often don’t go hand in hand.
Furthermore, the number of confirmed cases of COVID-19 in a country is not the best determinant of economic impact. France, where the focus was aggressively on reducing the number of infections, is facing a stiff economic price, with the third largest drop in GDP and a significant unemployment increase.
Switzerland, Italy and Spain have a similar number of cases per million inhabitants, but Switzerland is in a much better position economically.
A key factor appears to be the size of the country’s economic stimulus package as a proportion of GDP. Switzerland is spending 6% of GDP on its stimulus package, compared with 2% for Italy and 0.7% for Spain.
Like Switzerland, Austria and Germany also have large stimulus packages – 8% and 6.9% of GDP respectively – and they too are facing a relatively modest impact. All these three countries have wide-ranging forms of short-time work in place, which proved to be a successful measure in the wake of the 2008 economic crisis and seem to be a decisive component of an effective stimulus package today.
Protecting the labour market and the economy: Lessons from Europe
Analysing the best-performing countries leads to some recommendations for how governments should handle this crisis – and future ones.
- First, the health and safety of workers must come first, but that does not mean ceasing all economic activity. Finding safe ways to maintain some economic activity will soften the impact.
- Second, just as a swift reaction appears vital to minimizing the impact of the virus, so a rapid economic response is imperative to support GDP. The Netherlands is likely to have suffered some economic decline simply because it took too long to put in place its support mechanisms.
- Third, it is notable that those countries that have fared best have a national social dialogue model that is based on negotiation, rather than confrontation. This has been important in facilitating a fast response to the unfolding crisis.
- Also, though it is not directly reflected in our data, the countries with the most positive economic forecasts are all ones with high efficiency in making financial support available almost instantly to those who need it.
- Finally, this crisis has shown again that keeping people in work and avoiding lay-offs helps to mitigate endemic shocks. Investing in short-time work helps to keep the economy ready for a rapid restart, mitigate the impact on workers and thus protect consumer demand.
The learnings we see relate to a moment in time in countries that are around a month into the crisis. Quick action was instrumental to avoid a devastating economic cost as a result of the pandemic. However, how countries act is just as important as when they act. Time will tell which measures were the most effective, in terms of size and nature.