The Special Economic Effect of Pandemics

To bring the coronavirus outbreak in check, public health officials have advised Americans to avoid face-to-face contact, such as when functioning in your job location. As necessary as these measures have been from a health standpoint, there has been a flipside to preventing contact with the external world: large swaths of the market have ground to a halt. And since this pandemic is global, the consequences are felt globally also.


Really, the more the virus spreads across the planet, the greater the concern over not only our health, but our livelihoods. As of February 2021, there were over 27.8 million reported cases and 494,000 deaths in the United States.1 The World Health Organization reported roughly 110.4 million cases and 2.44 million deaths globally.2

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Just how badly has COVID-19 influenced the global market? The Federal Reserve Bank of St. Louis notes the economic downturn rivaled the first declines of the Great Depression, although the duration wasn't expected to continue as long.3 it might be a few more months before economic and social life returns to normal. The federal government has stepped up its own vaccine attempts and estimated there will be sufficient supply for 300 million Americans by the end of July.4

KEY TAKEAWAYS
  • the largest pandemic in modern history was the Spanish Flu of 1918 and 1919, during which many service-based companies suffered double-digit losses.5
  • Government interventions, like sending money directly to families, helped recently unemployed individuals or people with decreased working hours.
  • The arrival of a pandemic is a fantastic time for employees to shore up their emergency funds and be sure they're ready for a possible job loss.

The Interconnected Economy

With countless people in america and across the world in a virtual lockdown, a ripple effect across the economy has been unavoidable.

Surely, certain industries bear the brunt of the damage. Shops and restaurants shut their doors completely or opened with reduced seating capacity and reduced need to dine in. Non-essential travel vanished, causing massive lost earnings for not only airlines and cruise-ship operators, but smaller companies that rely on tourism earnings. The list goes on.

However, those used in apparently unrelated businesses also felt the secondary effects of social distancing. By way of instance, manufacturers, particularly those outside the health care field, saw fewer orders as purchasing slowed down. Banks consumed large mortgage forbearance amounts imposed by legislation.6 And oil companies saw prices plummet as investors felt weaker demand.7

The fear of the unknown only exacerbated these economic consequences. That means even families and individuals with ostensibly stable employment restricted purchases in the event the financial aftershock could not be contained.

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Assessing the Impact of a Pandemic

Every pandemic is unique, making measuring the consequences of any emergency harder. What is more, there simply are not many examples that compare to the worst-case quotes of something like COVID-19. By way of instance, the H1N1 flu of 2009 was prevalent, but not as lethal. The Centers for Disease Control estimate there were 60 million instances in the U.S., leading to fewer than 13,000 deaths.8

The closest comparison in modern times occurred over a century ago when the so-called Spanish Flu, which was caused by a different strain of H1N1 virus, ravaged the world between 1918 and 1919. According to CDC estimates, approximately 500 million people became sick with the disease, which ultimately took the lives of roughly 50 million globally.9

The U.S. Department of State requires all air passengers entering the United States to present a negative COVID-19 test taken within three days of death, or evidence of recovery from the virus over the previous 90 days. U.S. citizens are advised not to travel by cruise ship, and U.S. students studying overseas have been advised to postpone or cancel their plans.10

Economic data from the early 20th century is rare. However, an investigation by the Federal Reserve Bank of St. Louis estimated that a good deal of companies, especially service- and entertainment-oriented ones,"endured double-digit losses in earnings. "5 Back then, the economic disruption was short lived, as the inherent health crisis subsided in 1919.

How can the present pandemic compare? While the mortality rate of this coronavirus is almost certainly less than that of the Spanish Flu, its economic toll is already acute.

Since the underlying virus is so contagious--a group of researchers in the University of Hong Kong and Harvard University estimated that one-quarter to half the world's population would probably contract the virus"absent drastic control measures or a vaccine"--governments around the world took extreme steps to control its spread.11 But those activities, which included keeping most shoppers and restaurant patrons at home, came at a enormous economic price.

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The Impact of COVID-19

While experts can gauge what the financial fallout from a pandemic, such as COVID-19, will be, the exact impact will vary based on how many individuals are affected, how badly it strikes, and which social interventions are necessary to contain its spread.

Many workers and prospective shoppers sequestered themselves in the first days of their COVID-19 pandemic, which had a momentous impact on the international economy, in addition to that of america. In the U.S., by way of instance, retail sales dropped in April 2020 before recovering in July.12 in addition to that, data from the Federal Reserve reveals the worst dip in manufacturing output since the 1940s.13

Naturally, that sudden drop in demand had a devastating impact on employment. The national unemployment rate rose as high as 14.8percent in April 2020 before falling to 6.3percent in January 2021.14 Further estimates suggested more than 25.7 million employees were impacted by the pandemic. This figure included those whose hours were cut and people who were unemployed, among others.15

Those financial shock-waves are being felt from Beijing to Madrid, creating a drag on the world economy that has not been seen for decades. In January 2021, the International Monetary Fund (IMF) forecast the global economy had contracted by 3.5percent in 2020--the worst slip in recent memory. The IMF envisioned a strong recovery in 2021, with growth of 5.5% globally.16

How long the pain will last remains an open question. A century ago, the financial toll from the Spanish Flu wasn't particularly long-lasting. However, nobody can say for sure whether that is going to be the case this time around. Certainly, the more successful governments in the U.S. and abroad are in facilitating medical care and lowering the speed of transmission, the more muted the financial impact will be.

Can Government Intervention Help?

In a perfect situation, legislatures and central banks would use the power of the bag to help mitigate an economic crisis. In March 2020, U.S. lawmakers passed a $2 trillion stimulus bill, the Coronavirus Aid, Relief, and Economic Security (CARES) Act, to blunt the economic effects of the worldwide coronavirus pandemic. On March 27, 2020, President Donald Trump signed the bill into law, with a variety of steps aimed to assist the American people.17

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Efforts to open up the Treasury and send money straight to families helped recently unemployed individuals or people with decreased working hours. And interest rate reductions helped to boost liquidity in a time when cash is tight. The Fed slashed a key rate to near zero in March 2020.18

Those are not the only devices that authorities have in their toolkits. They can activate short-term funding mechanisms that help companies stay afloat and keep workers during the medical care crisis. And they are able to bolster unemployment insurance and offer other security loopholes that keep the most vulnerable residents from losing their homes or going hungry.

Most important, perhaps, government leaders will help ensure that physicians get the crucial resources they need to deal with patients and protect nurses and physicians. They can also work with the private sector to make sure that testing is readily available. Indeed, some experts consider the most effective economic medicine that the public sector can provide is a fast resolution to the inherent health threat.

Preparing Yourself Financially

While pandemics can cause substantial economic harm, at least in the short term, there are steps people can pursue to protect themselves as much as possible. Here are Some of the steps you may consider as a pandemic takes hold:

  • Do not obsess over your 401(k). Your investment statements will look very ugly for a little while. But when it comes to long-term investing, it is usually better to stay the program. By selling off your holdings, you are locking in losses, so you won't benefit from an eventual recovery. For those who have short memories, it just took a few short years for the market to rally from the stock exchange collapse of 2008.
  • Grow your emergency fund. Traditional wisdom dictates that you should have three to six months' worth of expenses easily available in your bank account at all times. A pandemic is just one of the situations for which they are intended. So if you are a bit short of the mark, now is the time to grow your book if you can--you will never know if you may need it.
  • Dust off your résumé. With less need, some companies are not likely to have the ability to keep their whole staff on the payroll. If you operate in a hard-hit business, now could be the time to begin looking at other job opportunities. Start connecting with those who might have the ability to help your job search and ensure that your résumé is in great shape.
  • Reach out to creditors. Individuals who've already seen their incomes fall because of a pandemic may find it tough to pay their mortgage, lease, or student loans. Since so many individuals will be affected, landlords and lenders may be more inclined to accommodate you than they otherwise would. The worst thing you can do if you miss a payment is to maintain your creditors in the dark.
The Most Important Thing

As governments around the world limit the freedom of the people, most experts concur that a substantial drop in economic output was unavoidable. The more successful nations are in keeping the rate of disease in check, the smaller that affect. Meanwhile, people can help themselves not only by social distancing, but by assessing their financial situation and planning for the worst.

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