Damage to the economy as a result of a second lockdown is inevitable

Rijnmond
Erasmus School of Economics

On 3 November, the Dutch government announced new restrictions in order to contain COVID-19. The new measurements intend to further restrict travelling movements. To gain further insight in the possible effects of these measurements, Rijnmond spoke with Professor of Urban & Regional Economics Frank van Oort on the subject of employment and innovative ways to make the economy resilient.

In the short run, predominantly direct effects will become noticeable. Consumption will decline, since one of the main functions of a city is defect under the current restrictions: people aren’t able to meet others in the city anymore. Since attending a concert, going out for dinner or a drink is out of the picture, many people tend to spend less money. These are not the only effects: in the long run, production will experience a cutback as well. Some industries are more reliant upon physical presence of people and are thus more sensitive to movement-restricting measurements. Despite the fact that it hasn’t happened yet, Van Oort points at the possibility of a new competition with other regions where such industries are still allowed to operate. Companies may find such regions more appealing, resulting in migration of businesses.

Reliability

Van Oort mentions the effects of foreign policy on the Dutch economy. One illustrative example is the situation at the start of the first lockdown: when a multitude of countries demanded an enormous amount of facemasks, supply couldn’t keep up with demand, resulting in a shortage in the Netherlands. Because the world was reliant upon China for the production of facemasks, of which huge parts weren’t accessible at the time because of a rigorous lockdown, vital sectors such as healthcare had to operate without facemasks as a result. This is highly undesirable; to prevent a similar situation from occurring, the infrastructure of the economy will have to be adjusted.

Flexibility

One of the crucial aspects of the economy that is key to making the economy more future-proof, is its flexibility. If we are able to relocate production processes to regions which are less impacted by the pandemic, we will already have come a long way. This is achievable within the borders of the Netherlands: provinces such as Groningen could be part of the solution. Companies such as butcheries can be moved, hence we can reduce the damage to the economy. Furthermore, Van Oort states that it is essential to continue business processes as much as possible. This, in combination with government support, has limited damages in the first wave to about eight percent, whereas the United Kingdom and Spain suffered damages as big as twenty percent. Further damage to the economy is inevitable, but also signifies a challenge to transform our economy to one which is abler to handle crises such as COVID-19.

More information

You can read the article on Rijnmond, 3 November 2020, here.