Economists at the University of Copenhagen have found lockdowns have had little impact on consumer spending habits and that the true dampener of purchasing activity is the coronavirus itself.
The findings of the preprint paper, which may not have been peer-reviewed, call into question the premise of the much-touted Swedish strategy, in which the Nordic country has shied away from entering lockdown, suffering thousands of deaths as a result, in order to preserve the economy.
Transaction data for 830,000 Danes and Swedes from the second-largest Scandinavian bank found aggregate spending dropped by 25 percent in Sweden and 29 percent in neighbouring Denmark, which instituted a lockdown. Denmark has had 10,713 cases of Covid-19 and 537 deaths, while Sweden has seen 28,582 cases and 3529 deaths.
“In Denmark, spending drops sharply around the shutdown on 11 March 2020 and remains below the level in the reference period,” the researchers write.
“In Sweden, spending drops sharply at almost the exact same time although no significant restrictions were imposed. Presumably, this is no coincidence but reflects that the Danish shutdown responded to an escalating pandemic, similar in the two countries, with its own strong effect on spending. This highlights the empirical difficulty of separating the effects of social distancing laws and the pandemic they are designed to contain.”
In their conclusion, the economists argue that the lockdown resulted in just a 4 percent decrease in spending and that the virus itself was to blame for the vast bulk of the economic slump.
“We estimate a massive reduction in consumer spending in both Denmark and Sweden around the date of the Danish lockdown. This drop consists of a common component to both countries of around 25 percent, and an additional drop in Denmark of just under 4 percentage points as a result of the shutdown. This finding suggests that the vast majority of the fall in economic activity in the Covid-19 crisis can be attributed to perceived disease risks influencing behaviour, rather than government restrictions,” they wrote.