This chapter begins by examining the mechanics of how the shock of sudden lockdown impacted our complex, integrated and circular economy, teasing out the various transmission processes and key economic agents. Section 2 deals with government responses and measures to rescue their economies from the fallout of the grinding halt. Different countries had different capacities to do it, and some could afford extensive programmes worth up to 40 per cent of GDP, while others eked out in single digits—reflecting their level of development, depth of pockets and the range of policy levers available. Section 3 briefly compares these measures to what was put in place during the Global Financial Crisis (GFC)—what we learnt from last time, and the difference it makes that this current crisis is health-driven and impacts simultaneously on economic demand and supply, whereas the GFC had its origins squarely in the world of finance. Section 4 concludes with a brief discussion on the impact of COVID-19 coping measures—some of which played out more or less as anticipated, whereas others did not—and potential consequences for the long term.

Section 1: Sudden Stop—An Economy Is Not A Supertanker

Until now, the term “sudden stop” was typically applied to the capital markets and used to describe the way that financial flows—often “hot money” heading from low interest rate countries to higher interest rate ones—could abruptly dry up or change direction, causing turmoil in exchange rates, interest rates and other financial markets. The health crisis of COVID-19 and coping policies of social distancing and lockdown saw a sudden stop applied as a deliberate policy, to humans and indeed the entire economy. Before this happened, people would not have dreamed such a sudden stop to normal life even possible. Often, when we talk about effecting change in the economy or in society we use the analogy of a supertanker, which is famous for taking a long time to change direction because of its massive size and weight and the effect of momentum. Sudden stop for these vessels is impossible and it takes kilometres of sea even to slow down or do a U-turn. Nonetheless, the ship does eventually come to a standstill, and when all engines are turned off it stays more or less headed in the same direction, and passengers and cargo remain on board unaffected.