Covid-19 Infections, Vaccinations, Lockdowns, and the Economy

Aug 30, 2021

The Morrison Government is desperate to end lockdowns, not least because of what they see as the damage the lockdowns are doing to the economy.

In fact, the best estimate by various private forecasters is that GDP will fall by around 2 per cent in the current September quarter, which is substantially less than the fall of 7 per cent in the June quarter last year. Nevertheless, there is a risk that Australia will be shown as recording its second recession in two years, and that doesn’t augur well politically for Morrison going into an election.

Vaccinations versus infections

Morrison’s plan for the removal of these lockdown and other restrictions assumes that as the proportion of the population which is vaccinated rises the number and severity of Covid cases will fall to a level that we should be prepared to live with.

Based on modelling commissioned from the Doherty Institute, Morrison has therefore proposed that once 70 per cent of Australian adults (16+) are vaccinated then lockdowns will be less likely, but possible if highly targeted. At 80 per cent vaccination rates, Morrison’s proposal is that vaccinated people would be exempt from restrictions, with the implication that the economy and life – at least for most of us –will return to normal.

But as Stephen Duckett and Anika Stobart have pointed out, the Doherty modelling depends upon the critical assumption that state health systems are able to test, trace, isolate and quarantine (TTIQ) new infections effectively. As the Doherty Report, itself, recognises: “the TTIQ public health response will be less effective at high caseloads”.

Accordingly, the Doherty Institute modelled two alternative scenarios with an:

  • ‘Optimal’ TTIQ response, which it deemed achievable when the active case numbers can be contained in the order of 10s or 100s;
  • ‘Partial’ TTIQ response, deemed more likely when established community transmission leads to rapid escalation of caseloads in the 1000s and beyond.

The modelling of the partial TTIQ response was based on data from Victoria’s Stage 2 outbreak last year. However, that data has now been superseded as the more virulent Delta strain of the virus is now the only relevant strain.

Even so, the Doherty Report found that ‘light or moderate restrictions will likely be insufficient to regain control of epidemics even at 70% coverage for only a partially effective TTIQ response’. Instead, ‘prolonged lockdowns would probably be needed to limit infection numbers and caseloads’.

True to form, Morrison of course ignored these qualifications to the central scenario in the Doherty Report and insisted that national cabinet sign off on the removal of restrictions when we attain the 70 and 80 per cent vaccination targets.

However, case numbers have been rising rapidly recently thus putting pressure on the TTIQ capacity of some states. Not surprisingly therefore some Premiers have been equivocating over Morrison’s national plan for the removal of restrictions based only on the achievement of vaccination targets. Instead, they want to also have regard for the caseload when deciding whether or not to remove restrictions.

In this context it is useful to compare the experience of Australia with other broadly similar countries, the UK, US, Japan, Germany, Canada, and New Zealand, which have eased restrictions as the number of vaccinations increased.

The key conclusion from this comparison (see Table 1 below), is that even though the vaccination rates in Australia and New Zealand are substantially lower than those in most of the other countries, our new Covid cases and deaths are currently far less.

For example, in the UK, where all restrictions have been lifted, the number of cases were 13.5 times higher than in Australia a week or so ago, and the number of deaths were nearly 50 times higher. In the US, both vaccination rates and restrictions vary enormously among the different states, but the overall net result is that the US currently has a high caseload – 12.7 times Australia’s, and the US death rate is 26 times higher.

Of course, none of these countries have yet reached the target 70 per cent vaccination rate, but the UK is not far off, and it must be questioned whether it has made the right decision to remove all its restrictions. In Australia, the NSW hospital system is already struggling with its present caseload, and in the absence of restrictions, how would it cope with a case-load as high as in the UK?

Table 1 Coronavirus Impact

Comparison of Vaccination Rates, Cases, Deaths and Hospitalization Rates

Proportion fully vaccinated %a Number of daily newly confirmed Covid cases per million peopleb Number of deaths from Covid per 1000 peopleb
Australia 33 36.91 0.08
Canada 66 75 0.27
Germany 59 117.17 0.21
Japan 43 182.37 0.4
New Zealand 22 7.67 0
United Kingdom 62 499.58 3.9
United States 51 470.53 2.1

(a) as at 27 August for Australia and 25 August 2021 for all other countries

(b) rolling 7-day average for week to 26 August 2021

Source: Coronavirus (COVID-19) Cases – Statistics and Research – Our World in Data

The economic impact of lockdowns

Furthermore, the economic gain from removing the lockdown while case numbers remain high is not obvious.

By the first quarter of this year, Australian GDP had more than recovered it pre-recession peak. Only the US and New Zealand among the developed countries can make the same claim. On the other hand, while GDP is recovering in Canada, Japan the Euro area and the UK, the latest available data show that their GDPs are still less than before the Covid pandemic.

Part of Australia’s strong economic recovery probably reflects the size of the Government’s fiscal response. According to IMF data, measures announced up to 5 June amounted to 18 per cent of GDP, but this was significantly less than in the US (25 per cent) and not much more than Japan and the UK (both 17 per cent), and Canada (16 per cent).

In short, Australia’s relatively strong economic performance is not due to a significant difference in its economic strategy. Rather it is Australia’s success in suppressing the virus that mainly explains that good economic performance, and that success was in turn built around the restrictions on mobility that were tighter in Australia than anywhere else.

Indeed, as the Treasury concluded from it modelling, ‘Continuing to minimise the number of Covid-19 cases, by taking early and strong action in response to outbreaks of the Delta variant, is consistently more cost effective than allowing higher levels of community transmission, which ultimately requires longer and more costly lockdowns’.

In sum, the expert economic advice has been ignored by Morrison, as has critical aspects of the advice from the health experts.

Conclusion

While we all want to end the lockdowns and relax the restrictions on mobility as soon as we can, it does not make sense to tie that only to when we achieve 70 and 80 per cent targets for vaccination rates. Regard also needs to be had for the active caseload of people with the virus at that time.

For example, at the end of last week, the secretary of the NSW Education Department was reported as saying that in NSW ‘schools will only return in communities where vaccination rates are high and community transmission is low’ (my emphasis). That would seem to provide the best model for the future relaxation of restrictions everywhere.

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