Want to know the near-real time impact of the COVID-19 lockdowns on a country’s economy? Analyze hourly consumption rates of electricity to measure the immediate implications on a country’s gross domestic product (GDP).
That’s what researchers at University of Exeter Business School did. They used the consumption data during Italy’s spring lockdown to measure the specific impact of those activities on the nation’s economy on a near-real time basis. Their results were published this month in Environmental and Resource Economics.
This method is superior to waiting three months for more traditional GDP metrics, the researchers write. Such metrics also “simply provide an overall picture of the status of the economy, but fail to disentangle the impact of COVID-19 from those of all other factors affecting production and consumption.”
“However, in this time of uncertainty and economic downturn, policy makers urgently require timely indicators to monitor in real-time the impact of COVID-19 on the economy and understand the causal impact of the policies designed to respond to the COVID-19 pandemic, including both those implemented to contain the virus and those developed to stimulate production and consumption after restrictions are lifted,” they write.
The researchers analyzed data from the Italian day-ahead power market from January 2015 through June 2020 to develop a hypothetical model of consumption for 2020 if there were no pandemic lockdowns. They compared the hypothetical model to actual consumption rates during and after the lockdowns to estimate the impact of COVID-19, and then they applied rescaling to derive the implications for GDP.
Using this methodology, the researchers calculated that Italy’s GDP in the first quarter fell 5.1%, which is consistent with Eurostat and OECD’s reported 5.3% drop. For the three weeks of the most intense lockdown in March and April, which included the shutdown of a large number of factories, the researchers calculated a reduction in the GDP by about 30%.
The negative impacts on Italy’s GDP progressively declined as the country gradually resumed economic and social activity, but at the end of June, the GDP was still about 8.5% lower than it would have been without the outbreak, the researchers calculated.
“In the current uncertain economic environment, timeliness is of essence for policy makers seeking to understand the current state of the economy and the impact of their policies,” the authors write. “Our approach can be used to monitor in real-time the extent of the disruption caused by the pandemic. It can also be used to assess the effectiveness of the monetary and fiscal stimuli that many countries have introduced in order to address the crisis.”
The researchers detailed a number of caveats to the study, including possible shortcomings of only analyzing a limited amount of time compared to a longer timeframe that would include additional impacts from other national polices, as well as possible spillover effects from other countries’ pandemic policies.
The study also did not take into account the possibility of adaptation strategies, such as a switch to home working, the researchers concluded.
“As companies become more adept at such modes of working, so the effect of future lockdown restrictions may become less severe,” they wrote. “This consideration has to be balanced against the potential for long-term and repeated lockdowns exerting cumulative and progressively more adverse economic effects, including through the impacts on human wellbeing.”