Opinion: The known and the unknown economic and social consequences of pandemics

By Prof. Reimund Schwarze, Head of the Climate Change and Extreme Events RG at the Helmholtz-Centre for Environmental Research – UFZ, Leipzig and the member of the UNDRR European Science and Technology Advisory Group (E-STAG)

Pandemics not only have health effects, but also social and economic ones. They affect the economy, social coexistence and the fundamental trust in national institutions. Under certain circumstances, this can also lead to the destabilization of individual countries or entire regions as we have learned from past experiences.

Lessons from Ebola and SARS

In the Ebola epidemic, the already weak health care system in the affected countries collapsed due to the high burden of disease. The closure of schools, public places and markets, as well as the fear and panic of infection brought public life to a standstill. The fact that farmers in particular were also affected by the disease led to a shortage of food and a sharp rise in food prices. Due to the loss of workers and the panic fear of the disease, economic productivity and trade collapsed. The most affected countries became increasingly isolated internationally through border closures and the cessation of travel and trade.[1]

The spread of SARS in 2002/2003 also had a strong economic impact on trade, business and travel, particularly in Canada and Singapore. In Canada, the real gross domestic product (GDP) in 2003 was expected to be about $1.5 billion or 0.15% lower. The greatest impact of SARS was in the tourism sector, where a national loss of $1.1 billion was expected in Canada in 2003.[2]

Three main reasons for the socio-economic consequences of SARS have been identified. Firstly, fear of infection has led to a decline in consumer demand, particularly in the travel and retail sectors. The rapid spread meant that people avoided social interactions in affected regions. These negative effects were more prevalent in regions with large service-related activities and population density, such as Hong Kong or Beijing. Secondly, the uncertainty associated with the disease led to a loss of confidence in the future of the affected economies. The loss of confidence of foreign investors had a strong impact on foreign investment flows, which caused losses in economic growth. Thirdly, SARS has led to an increase in disease prevention cost that has exceeded all expectations.[3] 

What we already know about the economic consequences of COVID-19

It is not yet clear how strong the impact of the current corona pandemic will be on the global economy. Although the crisis situation is far from over, it already has a strong impact on the socio-economic system. In Germany, for example, the DAX-Ax lost 39% of its value between February 19 and March 19. A further slump in share prices could only be stopped after the German government set up a historically unique rescue fund of around 500 billion euros. A recession is nevertheless inevitable and the current recovery of the stock markets remains fragile. DZ-Bank expects that the stock market barometer will only return to pre-crisis levels at the beginning of 2024.[4]

Globally, the International Monetary Fund (IMF) expects the economic output to shrink by 3%, causing the worst global recession in almost a hundred years. In general, the GDP forecasts for 2020 depend on the ability to curb the COVID pandemic and the speed of economic recovery in the second quarter of 2020. Therefore, current economic prognoses still contain “extreme uncertainties”, so the IMF.[5]

Observations of the stock market and economic models forecast GDP effects under a single, abrupt and rapid "freeze" of economic activity. They cannot, however, estimate the long-term development of health care costs, the impact on the labour market and productivity etc. caused through the different phases of the pandemic, although these would be essential for assessing the full economic costs of the pandemic [6].

The same applies to the economic policy response: Supporting the economy to the greatest possible extent quickly and unbureaucratically "whatever the cost" is the commonly used economic crisis response strategy [7] - albeit with unknown long-term consequences.

In the dark – the social consequences of COVID-19 

The social impacts can neither be quantified nor can they be assessed in a generalised way at present. Given the heterogeneity of the population at large, generalising statements are difficult to make. What we have so far seen, however, and can expect more in the future, is that domestic violence and abuse, especially against women and children, will increase with the spread and the duration of the pandemic, that people with mental (pre-)illness or conditions such as depression, will increasingly suffer from anxiety disorders or loneliness within the framework of social distancing strategies, but also after they have been eliminated. The loss of (family) income will plunge many people into existential economic crises, which will lead to increased excess mortality (through suicide, cardiovascular disease, alcohol and drug abuse, etc.), which could sometimes exceed the direct health consequences, including fatalities [8]. People who are cared for at home or who are themselves caring for relatives are also increasingly facing distress. The ban on schooling generally reinforces the social disadvantage of so-called "educationally disadvantaged milieus", in which the already above-average need for support is not compensated for by the family. On the whole, pandemics exacerbate social inequality unless effective countermeasures are taken. But politics often fail to see those particularly vulnerable groups, because people are ashamed to point out that they are in need of help, or because they forego such help on their own initiative. Our social sensors and the socio-medical reporting are inadequate for a pandemic crisis at the national and, even more so, at the international level.

A global research and data infrastructure for economic and social impacts 

The COVID-19 pandemic is in many ways a major test for our global research and data infrastructures [6]. Open science clouds and data collections must serve the needs of a comprehensive science-based policy, not only in "normal times" but also in times of crisis. We need a broad exchange of high-quality data in real time and on a global scale for a range of national and internationally coordinated scientific and policy tasks - in health policy, but no less so in economic and social policy.

Sources:

[1] Braun D, Invisible Enemies. Why Viruses and Bacteria Constitute a Security Policy Issue.  https://www.kas.de/documents/252038/253252/7_dokument_dok_pdf_52917_2.pdf/c1f81473-9e06-7b3b-45e2-7e7825113519?version=1.0&t=1539647262428.

 [2] Darby P.M., The Conference Board of Canada. The economic Impact of Sars.  https://www.conferenceboard.ca/(X(1)S(1zh2l4y3hfykceipqhdjlyq3))/e-library/abstract.aspx?did=539&AspxAutoDetectCookieSupport=1.

[3] Knobler S, Mahmoud A, Lemon S, Mack A, Sivitz L, Oberholtzer K (eds., 2004): Learning from SARS: Preparing for the Next Disease Outbreak: Workshop Summary. Institute of Medicine (US) Forum on Microbial Threats, Washington (DC). https://pubmed.ncbi.nlm.nih.gov/22553895/.

[4] Why the stock market is so stable despite fears of a recession. Web24news May-2-2020. https://www.web24.news/u/2020/05/why-the-stock-market-is-so-stable-despite-fears-of-a-recession.html.

[5] Gopinath G (2020): The Great Lockdown. Worst Economic Downturn Since the Great Depression. https://blogs.imf.org/2020/04/14/the-great-lockdown-worst-economic-downturn-since-the-great-depression/.

[6] Madhav N, Oppenheim B, Gallivan M, Mulembakani P, Rubin E, Wolfe N (2017) Pandemics: Risks, Impacts, and Mitigation. In: Jamison DT, Gelband H, Horton S (eds) Disease Control Priorities: Improving Health and Reducing Poverty. 3rd edition. The International Bank for Reconstruction and Development/The World Bank, Washington (DC). http://dcp-3.org/chapter/2601/pandemics-risks-mitigation-and-costs.

 [7] Richard Baldwin and Beatrice Weder di Mauro (eds., 2020): Mitigating the COVID Economic Crisis: Act Fast and Do Whatever It Takes. https://voxeu.org/content/mitigating-covid-economic-crisis-act-fast-and-do-whatever-it-takes.

[8] Michaelowa A, Michaelowa K (2020): The high costs of strict lockdown policies in poor countries. GlobalDev blog. https://www.globaldev.blog/blog/high-costs-strict-lockdown-policies-poor-countries

[9] Data Together COVID-19 Appeal and Actions. https://www.rd-alliance.org/data-together-covid-19-appeal-and-actions.