The weekly cost to the economy of the start of a third lockdown

On December 23, 2020, the government approved a decision to move to a tight lockdown starting on Sunday, December 27, 2020 at 5:00 pm.  The lockdown is to last for at least two weeks.  The main decision is to close workplaces that receive the public, chiefly commerce, personal services, and hotels in the “green islands” (the open tourism areas of Eilat and the Dead Sea).  In addition, frontal activity in the education system for grades 5–10 will be halted.  Leaving home for purposes that are not permitted will be limited to one kilometer distance.  Restaurants, which are still closed to seating since the second lockdown, will be able to operate only for deliveries.  It should be noted that most informal education (after school groups), cultural activity, and event halls, remain closed since the second lockdown and are expected to remain thus.  This short memorandum estimates the cost of entering a third lockdown, based on past experience.

 

Based on National Accounts data for the first three quarters of the year, and other indicators, the Bank of Israel Research Department estimated the rate of activity in the economy in each of the months from January to October (Figure 1 and Table 1).  Our assessment is that the average activity rate in ­April, during the first lockdown, was 80 percent.  In other words, the level of activity was 20 percent lower than what would have been expected in the absence of the pandemic and the lockdowns imposed as a result.  It should be noted that this is the average for April, which included the beginning of the easing of the lockdown in the last half of the month, and that the first half of the month included the Passover holiday, when activity is generally low.  It can therefore be assessed that at the peak of the first lockdown, before the Passover holiday, the activity rate was lower. 

 

Following the first lockdown, when the economy reopened, activity jumped rapidly such that the average activity rate during the summer months (prior to the second lockdown) was 95 percent.  The second lockdown, which began in the second half of September, caused less damage to activity, even though the instructions were more severe than those of the first lockdown.  The smaller impact to activity was apparently due to the preparedness of business for distance working and the partial upholding of the guidelines.  Our assessment is that the average activity rate for October was 88 percent.  The significance of each week in which activity is at this level, as opposed to full activity, is a loss of output of NIS 3.2 billion.

 

 Leading up to the current lockdown, there are factors for which the weekly cost of the lockdown is expected to be lower than during the October lockdown:

1.      At this stage, the lockdown guidelines are less stringent than they were during the second lockdown.  Workplaces with no public reception are permitted to continue partial operations, and the education system for younger ages will operate as normal.

2.      It is likely that businesses will remain prepared for operations in the shadow of the lockdown.

 

The factors for which the weekly costs of the lockdown are expected to be higher than they were in October include:

1.      The October estimate is a monthly average, as the easing of the closure began on October 19.

2.      The lockdown in October was during the holiday period, when economic activity is generally less intense than normal.  In contrast, the current lockdown will take place entirely during a period of normal business activity (no holidays).

 

Weighing all these factors, the cost of the lockdown beginning this week can be assessed at about NIS 2.5 billion per week, reflecting an activity rate of about 90 percent of the economy.

 

This is, of course, only the direct cost during the lockdown period.  It does not include continuing costs that may occur due to, for instance, bankruptcies of businesses or prolonged unemployment.  In addition, the estimates take into account only activity the value of which is covered in the GDP definitions of the National Accounts.  In other words, it does not include things like negative impact to civilian movement, benefits that are not priced in money (such as nature hikes, family visits, and so forth), damage to health as a result of delaying nonurgent medical treatments, and so forth.​​