The Pandemic’s Effects on the Economy, Part 1 – Where We are and Where We’re Going

Chris Stein writes in a January, 2021 issue of the International Business Times, “The United States saw its sharpest contraction in growth since 1946 as the coronavirus pandemic hammered the economy last year, but while the country may be set for a recovery, it hasn’t arrived yet.” (“World Pandemic Caused Worst Year For US Economy Since 1946,” International Business Times, 01/28/21, Chris Stein) A Brookings Institution team observes, “The COVID-19 crisis has led to dramatic swings in household spending. Retail sales, which primarily tracks sales of consumer goods, declined 8.7 percent from February to March 2020, the largest month-to-month decrease since the Census Bureau started tracking the data. (“Ten facts about COVID-19 and the U.S. economy” by Lauren Bauer, Kristen E. Broady, Wendy Edelberg, and Jimmy O’Donnell Thursday, Brookings Institution, September 17, 2020) Moreover, as Shahar Ziv predicted in Forbes, in June, 2020 “Covid-19 will inflict long-term damage on the U.S. economy, shrinking it by $7.9 trillion over the next decade, according to new projections by the Congressional Budget Office (CBO).” (Forbes, June 2, 2020 “Coronavirus Pandemic Will Cost U.S. Economy $8 Trillion” )

In his CBS News article “Coronavirus Pandemic to Cost Americans $16 Trillion, Study Finds” by Stephen Gandel, (October 13, 2020 MoneyWatch) Gandel summarizes a recent Journal of American Medicine article, “The COVID-19 Pandemic and the $16 Trillion Virus.” Finding nearly twice the effect of those reported above, Gandel writes, “The coronavirus pandemic will end up costing Americans $16 trillion, far more than anyone predicted when the virus first emerged in the U.S. back in March (2020), according to a new study released on Monday…If the study is correct, the coronavirus’ eventual impact could be four times the size of the damage done by the 2008 housing bust and subsequent Great Recession. The total cost of the pandemic — including more than 10 weeks of near total lockdown across most of the country, which caused the GDP in second quarter to drop by more than a third — will eclipse the money the U.S. has spent on every war since September 11, 2001, including those in Afghanistan, Iraq and Syria, the study says.”

The effects of the Pandemic are not restricted to the US, of course. Daniel Kurt writes, “Indeed, the International Monetary Fund (IMF) predicted the pandemic would incite the worst economic slump since the Great Depression…Just how big an impact can a pandemic as COVID-19 have on the global economy? Economic projections suggest it will be dramatic…” (See Daniel Kurt, Feb 16, 2021, Investopedia, “The Special Economic Impact of Pandemics: Expect Effects to be Massive in Ways that Differ from Other Disasters,” )

“The onset of the COVID-19 pandemic last year led to a devastating loss of jobs and income across the global south, threatening hundreds of millions of people with hunger and lost savings and raising an array of risks for children, according to new research co-authored at the University of California, Berkeley. Summarizing research in the journal Science Advances, The Berkeley report says that “staggering” income losses after the pandemic emerged last year, with a median 70% of households across nine countries in Africa, Asia, and Latin America reporting financial losses. By April last year, roughly 50% or more of those surveyed in several countries were forced to eat smaller meals or skip meals altogether, a number that reached 87% for rural households in the West African country of Sierra Leone.” (See University of California Berkeley, “Pandemic Caused ‘Staggering’ Economic, Human Impact in Developing Countries,” )

A January 2021 BBC Report notes that, globally, the majority of the world’s national economies are in recession, unemployment has increased among major national economies, new jobs are very scarce in Europe and the US, and the global tourism industry is crumbing. (See “Coronavirus: How the pandemic has changed the world economy,” by Lora Jones, Daniele Palumbo & David Brown, BBC News January 24, 2021)

Although the Pandemic’s economic effects are enormous, some in the US see hope ahead. Mohit Joshi, in World Economic Forum, reports “Thanks to government stimulus packages, liquidity is coming back to the market. It will keep enough of the economy afloat so that it can climb out of recession rapidly once the various lockdowns are lifted. But the way much of it is structured means that it will likely benefit already better capitalized larger businesses, over the smaller operators who may struggle.” (“Who will be the winners in a post-pandemic economy?” Mohit Joshi, World Economic Forum)

In his recent article, “CBO Sees Rapid Growth Recovery, Labor Force Returning to Pre-pandemic Level by 2022,” Thomas Franck reports that even without a stimulus package, the outlook for the economy looks promising. Among favorable predictions:

• The Congressional Budget Office upgraded its U.S. economic outlook, saying GDP growth will recover “rapidly.”
• GDP is expected to return to its pre-pandemic size in mid-2021 and the labor force is forecast to rebound to its pre-pandemic level in 2022, the CBO said.
• Importantly, the CBO said its rosier projections do not assume any new stimulus, including President Joe Biden’s $1.9 trillion plan.
• The CBO projects the unemployment rate to fall to 5.3% in 2021 and to 4% between 2024 and 2025.

A little less sanguine, Federal Reserve Chairman, Jerome Powell, predicted in November, 2020, “We’re recovering, but to a different economy.” (See “The Economy as We Knew It Might be Over, Fed Chairman Says,” by Anneken Tappe, CNN Business, November 12, 2020) As the author observes: “The pandemic has accelerated existing trends in the economy and society, including the increasing use of technology, telework and automation…This will have lasting effects on how people live and work… While technological advances are generally positive for societies over the long term, Powell said, on a short-term basis they create disruption, and as the market adjusts to the new normal the pain isn’t shared evenly.”
In our forthcoming article, “The Pandemic’s Effects on the Economy, Part 2—A Return to ‘Normal’?” we will examine what US Economic “normality” looks like.