Accounting for the Unaccountable – Perspectives on the Economic Effects of the Coronavirus 19 Pandemic

Abstract

What will be the economic effects of the Coronavirus 19 Pandemic of 2020? Will it be a blip on the screen or a lead-in to a full-blown recession or even a new depression? In trying to answer these questions, the silo-based nature of academic research can be frustrating. I attempt to answer these questions based on a variety of evidence drawn from economic history (e.g., the “Spanish flu” of 1918-19), pandemic economic models at several levels of abstraction (i.e., worldwide, regional, and country), and cost effectiveness of pandemic interventions (e.g. schools closures). The sources of the evidence vary from current “hot of the press” working papers and “think tank” papers; to published peer reviewed research in health economics and policy, crisis management, and economics; industry based models (e.g., Swiss re.) and estimates regulatory agencies (e.g. US Federal Reserve). I summarize and interpret what prior research says in addition to identifying the key unknowns that could magnify or dilute the predicted effects.

My interpretation of that evidence is that the economic costs from the coronavirus pandemic will cause a one-year decline in global Gross Domestic Product (GDP) of 3.7% to 6%. Consistent with that range is an up to one-quarter decline of 21% in GDP. The average predicted time to recovery based on the evidence reviewed is one to two years. These estimates, based on economic history and pandemic models, are consistent with recent estimates of economic effects of the current pandemic of 3.4% (Bloomberg for USA) to 6.0% (IMF for developed economies).

Keywords: Spanish flu, pandemic, macroeconomic, simulation, evidence based

JEL Classification: E17, E32, I10, I18, H1