To bring the coronavirus outbreak under control, public health officials have advised Americans to avoid face-to-face contact, including when working on a job site or in an office. As necessary as these steps have been from a medical standpoint, there's been a flipside to avoiding contact with the outside world: large swaths of the economy have ground to a halt. And because this pandemic is global, the repercussions have been felt globally as well.
Indeed, the more the virus spreads around the globe, the greater the concern over not just our health, but our livelihoods. As of March 2021, there were more than 29 million reported cases and 532,355 deaths in the United States. The World Health Organization reported roughly 119.7 million cases and 2.65 million deaths worldwide.
Just how severely has COVID-19 impacted the global economy? The Federal Reserve Bank of St. Louis notes the initial economic slump rivaled the initial declines of the Great Depression, though the duration was not expected to last as long.
It may be several more months before social and economic life returns to normal. The U.S. federal government has stepped up its vaccine efforts and estimated there will be enough supply for 300 million Americans by the end of July. President Biden directed states, Tribes, and territories to make all adults eligible for the COVID-19 vaccine no later than May 1, "with the goal of getting the nation closer to normal by July 4th, Independence Day," according to a White House press statement.
- Pre-COVID-19, the biggest pandemic in modern history was the Spanish Flu of 1918 and 1919, during which many service-based businesses suffered double-digit losses.
- Economic shock-waves of the COVID-19 pandemic have been felt from Beijing to Madrid: The IMF estimates the global economy declined over 3% in 2020.
- While certain industries, such as travel and hospitality, felt the pandemic's impact most directly, the effect also spread to unrelated industries as well.
- Government interventions during the pandemic, such as sending money directly to households, have helped newly unemployed individuals or those with reduced working hours.
- The advent of a pandemic is a good time for workers to shore up their emergency funds and make sure they're prepared for a possible job loss.
The Interconnected Economy
When millions of people in the United States and around the world entered a virtual lockdown, a ripple effect throughout the economy was inevitable.
Certainly, specific industries have borne the brunt of the damage. Shops and restaurants closed their doors altogether or opened with low seating capacity and low demand to dine in. Non-essential travel evaporated, causing massive lost revenues for not just airlines and cruise-ship operators, but smaller businesses that rely on tourism revenue.
However, those employed in seemingly unrelated industries also felt the secondary effects of social distancing. For example, manufacturers, especially those outside the medical field, saw fewer orders as shopping slowed down and demand for nonessential goods, like new clothes, dwindled. Banks absorbed the loss of mortgage payments, due to government-mandated forbearance rules. And oil companies saw prices plummet—even turning negative in April 2020, for the first time in history—as investors sensed weaker demand, given the lack of even everyday travel.
The fear of the unknown only exacerbated these economic impacts. That means even individuals and families with ostensibly stable employment limited their purchases in case the financial aftershock couldn't be contained.
Measuring the Effect of a Pandemic
Every pandemic is unique, which makes measuring the repercussions of any crisis more challenging. What’s more, there simply aren’t many examples that compare to the worst-case estimates of something like COVID-19. For example, the H1N1 flu of 2009 was widespread, but not as deadly. The Centers for Disease Control estimate there were 60 million cases in the U.S., resulting in fewer than 13,000 deaths.
The closest modern comparison to the COVID-19 pandemic occurred more than a century ago when the so-called Spanish Flu (another H1N1 virus, though a different strain than the 2009 version) ravaged the globe between 1918 and 1919. According to CDC estimates, roughly 500 million people became ill with the disease, which ultimately took the lives of about 50 million worldwide.
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 departure, or proof of recovery from the virus within the past 90 days. U.S. citizens have been advised not to travel by cruise ship, and U.S. students studying abroad have been advised to postpone or cancel their plans.
Economic data from the early 20th century is scarce. However, an analysis by the Federal Reserve Bank of St. Louis estimated that a lot of businesses, particularly service- and entertainment-oriented ones, "suffered double-digit losses in revenue." Back then, the economic disruption was short-lived, as the underlying health emergency subsided in 1919.
How does the current pandemic compare? While the mortality rate of the coronavirus is almost certainly less than that of the Spanish Flu, its economic toll is already severe.
Because the underlying virus is so contagious—a group of researchers from the University of Hong Kong and Harvard University estimated that one-quarter to one-half of the world’s population would likely contract the virus “absent drastic control measures or a vaccine"—governments around the world took drastic measures to control its spread. But those actions, which included keeping most shoppers and restaurant patrons at home, came at a big economic price.
The Impact of COVID-19
While experts can estimate what the economic fallout from a pandemic, such as COVID-19, will be, the precise impact will vary based on how many people are affected, how severely it hits, and which societal interventions are necessary to contain its spread.
Many workers and potential shoppers sequestered themselves in the early days of the COVID-19 pandemic, which had a momentous impact on the global economy, as well as that of the United States. In the U.S., for example, retail sales plunged in April 2020 before recovering in July. On top of that, data from the Federal Reserve shows the worst dip in manufacturing output since the 1940s.
Of course, that sudden drop in demand had a disastrous effect on employment. The national unemployment rate climbed as high as 14.8% in April 2020 before dropping to 6.2% in February 2021. Additional estimates indicated more than 25.7 million workers were affected by the pandemic. This figure included those whose hours or compensation were cut and those who were completely unemployed, among others.
Those economic shock-waves are being felt from Beijing to Madrid, creating a drag on the world economy that hasn't been seen for decades. In January 2021, the International Monetary Fund (IMF) forecasted the global economy had contracted by 3.5% in 2020—the worst slide in recent memory. However, the IMF envisioned a robust recovery in 2021 and 2022, with worldwide growth of 5.5% and 4.2%, respectively.
How long the pain will last remains an open question. A century ago, the economic toll from the Spanish Flu was not particularly long-lasting. However, no one can say for certain whether that will be the case this time around. Certainly, the more effective governments in the U.S. and abroad are in facilitating medical care and reducing the rate of transmission, the more muted the economic impact will be.
Can Government Intervention Help?
In an ideal scenario, legislatures and central banks would use the power of the purse 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 impact of the global coronavirus pandemic. On Mar. 27, 2020, President Donald Trump signed the bill into law, with a number of measures aimed to help the American public.
Efforts to open up the U.S. Treasury and send money directly to households helped newly unemployed individuals or those with reduced working hours. And interest rate cuts helped to boost liquidity at a time when money is tight. The Fed slashed a key rate to near zero in March 2020.
Those aren't the only devices that governments have in their toolkits. They can activate short-term financing mechanisms that help businesses stay afloat and retain workers during the health care crisis. And they can bolster unemployment insurance and provide other safety nets that keep the most vulnerable residents from losing their homes or going hungry.
Most important, perhaps, government leaders can help ensure that hospitals get the vital resources they need to treat patients and protect doctors and nurses. They can also work with the private sector to ensure that testing is readily available. Indeed, some experts believe the best economic medicine that the public sector can provide is a quick resolution to the underlying health threat.
Preparing Yourself Financially
While pandemics can cause significant economic damage, at least in the short term, there are steps individuals can pursue to protect themselves as much as possible. Here are a few of the measures you might consider as a pandemic takes hold:
Don’t Obsess Over Your 401(k)
Your investment statements are going to look very ugly for a while. But when it comes to long-term investing, it’s usually better to stay the course. By selling off your holdings now, you’re locking in losses, which means you won’t benefit from an eventual recovery. For those with short memories, it only took a few short years for the market to rebound from the stock market collapse of 2008.
Build Up Your Emergency Fund
Conventional wisdom dictates that you should have three to six months’ worth of expenses readily available in your bank account at all times. A pandemic is one of the scenarios for which they’re intended. So if you’re a little short of the mark, now’s the time to build up your reserve if you can—you never know if you might need it.
The U.S. personal saving rate (the ratio of personal savings to disposable personal income) in April 2020—the highest in history, according to the Brookings Institution
Dust Off Your Résumé
With less demand, some businesses aren’t going to be able to keep their entire staff on the payroll. If you work in a hard-hit industry, now might be the time to start looking at other job opportunities. Start connecting with people who might be able to aid your job search and make sure your résumé is in good shape.
Reach Out to Lenders
Those who have already seen their incomes drop as a result of a pandemic might find it hard to pay their mortgage, rent, or student loans. Since so many people are going to be affected, lenders and landlords may be more willing to accommodate you than they otherwise would. The worst thing you can do when you miss a payment is to keep your creditors in the dark.
Economic Impact of the Pandemic FAQs
What Has Been the Economic Impact of the COVID-19 Pandemic?
"The COVID-19 pandemic has pushed the world into a recession," the International Monetary Fund has bluntly stated. It estimates that in the pandemic year of 2020, the global economy contracted by 3.5%.
In the U.S., according to the Brookings Institution, the pandemic brought to a halt the longest economic expansion and bull stock market in history (from June 2009 to Feb. 2020). On March 16, as mandatory lockdowns went into effect, the stock market crashed: the Dow Jones Industrial Average lost nearly 13% and the S&P 500 dropped 12%.
Among the grim statistics:
- The nation experienced two consecutive quarters of declines in gross domestic production (GDP); the decrease of 9.1% in the second quarter of 2020 was the steepest quarterly drop in economic output since modern record-keeping began in 1947.
- COVID-19–related job losses wiped out 113 straight months of job growth, with total employment falling by 20.5 million jobs in April.
- In 26 states, more than one in five households was behind on rent in July.
While the economic fallout of the pandemic has been widespread, it has been particularly prevalent among Black, Latino, Indigenous, and immigrant households, the Center on Budget and Policy Priorities, a non-profit research institute, has found.
What Is the Economic Relief Payment for the COVID-19 Pandemic?
The U.S. Congress passed several bills to address the financial fallout of the COVID-19 crisis. First was the Coronavirus Aid, Relief, and Economic Security (CARES) Act, passed in March 2020. The CARES Act included a direct $1,200 payment for families and the Paycheck Protection Program (PPP) program for affected businesses.
An additional direct stimulus payment of $600 was included in the Coronavirus Response and Relief Supplemental Appropriations Act of 2021, which was signed into law in December 2020.
A third stimulus check of $1,400 to qualifying adults and each of their dependents was authorized in March 2021 through the American Rescue Plan Act of 2021.
Who Is Eligible for the COVID-19 Economic Impact Payment?
Individuals with adjusted gross incomes (AGIs) of $75,000 or less—and married couples filing jointly with AGI s of $150,000 or less—receive the full amount of $1,400 of the economic impact payment provided by the American Rescue Plan Act of 2021. So will any of their dependents.
Those earning more will receive lesser payments, which phase out at AGIs above $80,000 for individuals and $160,000 for couples.
How Much is the COVID-19 Economic Impact Payment?
The full economic impact payment instituted by the American Rescue Plan Act of 2021 comes to $1,400 per individual.
What Are Economic Injury Disaster Loans (EIDL)?
Economic Injury Disaster Loans (EIDL) are financing available to small businesses, self-employed people, and independent contractors, administered through the federal Small Business Administration (SBA). The SBA's Economic Injury Disaster Loan (EIDL) Program actually predates the COVID-19 pandemic, but the CARES Act and other legislation modified it to provide rapid assistance to businesses who've suffered a loss of revenue and other adverse effects for coronavirus-related reasons.
The original COVID-19-emergency EIDL program began on March 27, 2020, as part of the CARES Act. Passage of the Consolidated Appropriations Act (CAA), 2021 on Dec. 27, 2020, extended the EIDL through Dec. 31, 2021.
EIDLs are long-term, low-interest-rate, direct loans, meant to provide six months' worth of working capital of up to $150,000. The interest rate is fixed at 3.75% (2.75% for nonprofits) and you can take up to 30 years to repay. The first payment can be deferred for one year.
To qualify for an EIDL, an enterprise must meet the SBA definition and size standards of a small business, be located in the U.S., and have suffered working capital losses due to the pandemic. More specifically, an enterprise must:
- Be an SMB or agricultural business with less than 500 employees
- Be an independent contractor, freelancer, gig worker, or sole proprietor (with or without employees)
- Have been in business as of Jan. 31, 2020
The Bottom Line
As governments around the world limit the mobility of their people, most experts agree that a significant drop in economic output was inevitable. The more successful countries are at keeping the rate of infection in check, the smaller that impact. In the meantime, individuals can help themselves not only by social distancing, but by analyzing their financial situation and planning for the worst.