EpidemicsCould Coronavirus Really Trigger a Recession?
Fears are growing that the new coronavirus will infect the U.S. economy. The worry is understandable; viruses are scary things. The 1918-1919 influenza pandemic, also known as the Spanish flu, killed at least 50 million people worldwide, with some estimates putting the number as high as 100 million. In the U.S., almost 1 of every 3 people became infected, and 500,000 died. Even for those who survived, there were numerous cases of long-term physical disability. Fortunately, the adverse economic impacts were short-lived. With today’s more mobile and interconnected world, however, some suggest any large-scale pandemic would be much more severe, with costs in the trillions. Even if the death rates are relatively low, the economy can still suffer. These economic impacts would likely come in four forms: shortages of products from China, reduced sales to China, a drop in consumer spending based on fears about the virus and falling stock prices.
Fears are growing that the new coronavirus will infect the U.S. economy.
A major U.S. stock market index posted its biggest two-day drop on record, erasing all the gains from the previous two months; companies including Apple and Walmart have been warning of potential sales losses from COVID-19 and the Centers for Disease Control and Prevention told Americans to prepare for the outbreak to spread to the United States, with unknown but potentially “bad” consequences.
Lately, many people have asked me, as an economist, a question I haven’t heard in years: Could a virus really send the global and U.S. economies into recession – or worse? Put more pertinently, will COVID-19 trigger an economic meltdown?
What a Virus Can Do
The worry is understandable; viruses are scary things. I’ve read my share of medical thrillers based on some new virus spreading throughout the globe killing millions, destroying businesses and almost ending civilization until heroes – super or not – contain it at the last minute.
While these are works of fiction, we only have to look back 100 years to find a real example of what an unchecked virus can do.
The 1918-1919 influenza pandemic, also known as the Spanish flu, killed at least 50 million people worldwide, with some estimates putting the number as high as 100 million. In the U.S., almost 1 of every 3 people became infected, and 500,000 died. Even for those who survived, there were numerous cases of long-term physical disability.
Fortunately, the adverse economic impacts were short-lived. With today’s more mobile and interconnected world, however, some suggest any large-scale pandemic would be much more severe, with costs in the trillions.
To date, deaths from the coronavirus have been very small, totaling a little over 2,700 worldwide, out of more than 80,000 known cases – or only about 3.4 percent. Almost all of the deaths have been in China, where the virus was first detected. Rapid actions to quarantine infected individuals have likely limited the spread.
Yet even if the death rates are relatively low, the economy can still suffer. These economic impacts would likely come in four forms: shortages of products from China, reduced sales to China, a drop in consumer spending based on fears about the virus and falling stock prices.
Let me evaluate the potential impact of each, but bear in mind that they are all interconnected, and a drop in just one can affect the others.
