Contrasting public health and national economy during Covid-19 pandemic creates a false dilemma - central bank expert

  • 2020-11-03
  • LETA/TBT Staff

RIGA - Contrasting public health and national economy during the Covid-19 pandemic creates a false dilemma, as the Bank of Latvia economist Karlis Vilerts told LETA in commenting the need to declare a state of emergency due to the spread of Covid-19 in Latvia.

Stemming the spread of the virus is not the worst case scenario for the economy, on the contrary, keeping the disease in check is also critical from an economic point of view, said Vilerts.

"Even without restrictions, we would not be able to avoid a slowdown in economic activity if it meant both uncontrolled spread of the disease and a significant increase in the number of deaths from Covid-19. It is unlikely that people would continue to live as usual, going to restaurants and cultural events or sending their children to sport practices. In the end, the demand for goods and services produced by the companies would fall all the same, but the price - measured in the number of people's lives - would be much higher," said Vilerts.

Economic crises inflict lasting "scars" - companies become cautious in their investment decisions, liquidity problems escalate into insolvency and bankruptcies, the unemployed have fewer opportunities of finding work than before.

"Currently, there are too many unknowns to judge, at least roughly, what a state of emergency would mean for the Latvian economy. Will it be declared, and when? What measures would be implemented and for how long? At the same time, it must be understood that the economic impact will largely depend on how successfully the spread of the virus is curbed," said Vilerts.

At the same time, it would not be right to believe that restrictions will not have economic consequences. "This means that, in parallel with the restrictions, it is important to support companies and households affected by the crisis. In addition, the resistance to the restrictions would probably be lower if companies and households had confidence that they would receive state support," said the Bank of Latvia's economist.