Worldwide efforts to contain the new coronavirus have been observed for the past few months: shutdowns of schools and businesses, community quarantines, increased protection for our healthcare workers, and many more. But, despite these efforts, the number of cases is on the rise. Since the virus was first reported in Wuhan, China, it has hopped borders, infected more than 1,300,000 people, and killed more than 74,000.
It’s been only a few months but many countries are starting to feel the economic impacts of the pandemic. Unfortunately, the virus is here to stay. According to Live Science, a science news website that features groundbreaking developments in science, space, technology, health, the environment, our culture and history, experts said that the cases of COVID-19 will only start decreasing when enough people develop immunity either through infection or vaccination. Thus, it is very unlikely that the pandemic will be contained in a few locations.
"It is increasingly likely that this virus will spread worldwide. We still may have some chance to contain it, but that window does appear to be closing,” Aubree Gordon, an associate professor of epidemiology at the University of Michigan, said.
Current estimates show that on average, COVID-19 can infect two or three people. While this number can change based on people’s behavior, researchers estimate that the herd immunity threshold for COVID-19 is about one-third to two-thirds of any given population. That translates to 2.5 billion to 5 billion people across the world. Latest reports say that a vaccine for this virus would be available with at least 12 to 18 months. Because of that, we might need to make social distancing and self-quarantine include in our normal daily lives.
The economic consequences of the pandemic are already affecting many countries with unprecedented speed and severity. In the US alone, almost 10 million people applied for unemployment benefits during the last two weeks in March. Such a sharp and staggering increase has never been seen before, not even at the peak of the global financial crisis in 2009.
“From an economic perspective, the key issue is not just the number of cases of COVID-19, but the level of disruption to economies from containment measures,” Ben May, head of global macro research at Oxford Economics, said.
Economic Effects of the Virus
Disruptions caused by the pandemic are starting to ripple in many industries. While the depth, length and regional dispersion of the economic decline are largely unknown, many experts have shared the possible impacts this outbreak will bring to all of us.
A Healthcare Crisis
While many governments across the world have to deal with their own problems and protect their citizens, all of them have a common priority: the health and safety of their people. Thus, during this crisis, the role of our healthcare system has become more important than ever. Thousands of healthcare workers are on the frontlines, making sure that those infected will recover while also risking their safety. However, many inefficient healthcare systems have made our front liners vulnerable to the disease. The pandemic has turned this healthcare crisis into an economic one.
Countries face different levels of risk and vulnerability to the pandemic. Unfortunately, those who are living in poorer countries with weak health systems are often hit hardest outbreaks like this, disproportionately affecting the most vulnerable populations that are least prepared to limit the spread of the virus.
The Labor Market
Worker layoffs are likely to increase as businesses continue to close due to the pandemic. The evidence of this has already shown up as the number of Americans filing unemployment benefit claims increases. According to the World Economic Forum, an independent international organization committed to improving the state of the world by engaging business, political, academic, and other leaders of society to shape global, regional, and industry agendas, economists expect the payroll data to show a loss of 293,000 jobs, the largest monthly drop since July 2009.
Declining Oil Prices
Reports show that the demand for oil has decreased due to a reduction in global economic activity, taking oil prices to multi-year lows. According to CNBC, the world leader in business news and real-time financial market coverage, analysts said that reduced oil demand from the virus outbreak and an expected increase in supply are a “double whammy” for oil markets. “The spread of the virus in Italy and other parts of Europe is particularly worrying and will likely dampen demand in OECD countries as well,” they said. Many oil companies are also suffering from a toxic combination of tumbling oil and commodity prices due to the global economy tumbling into recession and weakening currencies, making servicing external debt ever-more expensive.
Economic Impacts Might Last For Decades
Economists from the University of California recently studied macroeconomic responses to historic pandemic events to fully understand the economic impacts of the coronavirus outbreak. They used data collected over many years by economic historians and measured economic performance at an annual frequency in cities, regions, and countries from the 14th century to the present. Aside from that, the team studied 12 major pandemics where more than 100,000 people died and armed conflicts killed comparable numbers of people.
The findings of the study published online by the Financial Reserve Bank of San Francisco showed that pandemics typically are followed by depressed investment opportunities. According to Phys.org, an internet news portal that provides the latest news on science, the natural rate of interest declines for decades after a pandemic, reaching its lowest point about 20 years later. Unfortunately, the natural rate that would be expected had the pandemic not taken place returned about four decades later. Thus, significant macroeconomic after-effects of the pandemics persist for about 40 years.
The researchers also concluded that the pandemic will likely depress real rates of return, an annual percentage of profit earned on an investment. It will also lead to small increases in real wages and a weigh on investment. "If the trends play out similarly in the wake of COVID-19—adjusted to the scale of this pandemic—the global economic trajectory will be very different than was expected only a few weeks ago. Pandemics are followed by sustained periods—over multiple decades—of depressed investment opportunities,” the authors said.