Estimating the heterogeneous impact of Covid-19 on economic activity in Europe using high-frequency electricity market data

In response to the Covid-19 emergency, most countries introduced a series of social-distancing measures including lockdowns and businesses’ shutdowns. Therefore, official statistics indicate that virtually all developed economies experienced a significant contraction in the first quarter of 2020. This type of statistics has two main drawbacks. First, they are typically released with a significant delay. Second, they fail to disentangle the impact of Covid-19 from those of all other factors affecting production and consumption and, therefore, they do not offer an estimate of the causal impact of the pandemic and of the policies implemented to contain it (e.g. lockdowns). This paper builds upon Fezzi and Fanghella (2020, Environmental and Resource Economics) by using daily electricity consumption data to estimate the causal short-run impacts of Covid-19 on the economic activity of a selection of about 15 European countries. Our identification strategy relies on a fixed-effect estimator and on daily, country-level electricity consumption information (and related control variables) for the years 2015-20. Our preliminary results can be summarized as follows: Appropriately-adjusted electricity consumption can be a proxy for GDP impacts in the short run: our results for the 1st quarter of 2002 are virtually indistinguishable from those from official statistics; Our real-time estimates (at the moment up to July 2020) indicate that the impact of Covid-19 has been highly heterogeneous across countries. The most affected countries are those that experienced the most significant outbreaks (e.g. Italy, Spain, the United Kingdom). Interestingly, countries that implemented a light lockdown (e.g. Denmark, Norway) are now better off than countries that, in a similar situation, decided to proceed with business-as-usual (e.g. Sweden).

• A swift policy response to outbreaks is fundamental to both save lives and reduce the economic burden of the pandemic. In this respect, light lock-down measures implemented without delay are those that minimize the medium-run economic impact of the pandemic.