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Economic Shutdown: Global Impact of the Pandemic

by TheSurvivor
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Shutdown Economy: Continual of the Pandemic

Since the outbreak of the COVID-19 pandemic at the beginning of 2020, governments all around the globe have put the lid on businesses and ordered citizens to stay indoors to prevent the spread of the virus. In the US, partial stay-at-home orders were released in at least 45 states, according to which only essential workers were allowed to go to work. Although, this has mitigated the effects of the virus, this is by far the most rapid economic shutdown that the US has encountered. 

The economic shutdown has led to more than 20 million Americans apply for unemployment by April 2020 alone. According to experts, if it were to continue until the middle of the year, the Gross Domestic Product (GDP) will end up with double-digit drops. Economists have predicted how the US will step into a recession, given that the country is facing the worst economic downturn since the Great Recession in 2008. The typical signs of recession have surfaced sooner than expected which include increasing unemployment rates, dip in industrial production by 5.4%, and 8.7% of a rapid drop in retail sales before April 2020. The longer the virus lasts, the more damage it would do not just to the US economy but the global economy as well. At this point, only the end of the virus will determine the initial reopening decision. 

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How Long Will the COVID-19 Economic Shutdown Last 

Shutdown Economy: Continual of the Pandemic
Source: Axel Bueckert EyeEm

The coronavirus pandemic has uprooted the daily lives of the citizens in the US and around the world. As of May 13, 2020 there have been 1,419,048 infected cases and 84,243 deaths in the US. The end of the economic shutdown solely depends on the departure of the virus itself. Ideally, the pandemic will end only when enough population is immune to the disease (preferably at least 60 percent), either through a prospective vaccine or by surviving the virus.

The logic behind economic shutdown was to decrease the spread of the virus and ensure mass testing. But even with the closure of all businesses, the US will most likely experience the age of the coronavirus pandemic throughout the whole year. Currently, the focus is only on two possible outcomes – either to reopen the economy or to keep it closed until the eradication of the virus. But realistically, there should be a third option to be looked into which allows the economy to be flexible enough to invent new ways to operate efficiently as long as the pandemic lasts.

Health Experts’ Take on It

Shutdown Economy: Continual of the Pandemic
Source: Tom Werner

Although few states in the US have already planned of reopening businesses amid the COVID-19 pandemic, a certain group of top health experts has warned how this could potentially worsen the situation to a great extent. According to Dr. Harvey V. Fineberg, the president of Harvard’s Institute of Medicine, it’s not about choosing the economy over the disease or vice versa. Both must be done simultaneously. The impact of the disease is different in different cities of the country, based on the population and the measure of social distancing. Whether a virus is spreading or not in a particular city is essential to decide if the social distancing measures should be relaxed. 

The epidemiological timeline is quite long, starting from the person getting infected until the death (in the worst-case scenario). The initial symptoms of the contraction of the virus do not show up until five days which makes it harder to understand if an individual would aid the spread of the infection. Besides, the lack of test capacity is making it harder to identify the disease until it’s too late. Even if people with the standard symptoms show up at the hospital and get tested, there are a lot of other cases that go undetected due to mild symptoms. 

Furthermore, it is pertinent to find out whether the people who have recovered from the virus are capable of spreading the disease. That’s the kind of epidemiological data that will help to determine whether it is safe to order the relaxation of social distancing, followed by reopening businesses. It is important to know at what position of the epidemic curve the country is. Until that is known for sure, reopening could lead to the second wave of the virus which could be deadlier. According to the Centers for Disease Control’s (CDC) guidelines, communities should not be reopened until certain indicators have been met including the control of disease transmission and the detection, testing, and treating of every infected individual. 

Estimation by Computer Modelers on the Shutdown’s Duration 

Shutdown Economy: Continual of the Pandemic
Source: Andriy Onufriyenko

According to a group of epidemiologists at the University of Washington, a model has been set up to determine the ideal time frame for loosening the stay-at-home orders.  The model was set up in the third week of April 2020 according to which the potential time for Washington State would be the week of May 18. Moreover, based on UW’s Institute for Health Metrics and Evaluation’s projections, Hawaii, Vermont, Montana and West Virginia could reduce the restrictions 2 weeks before that, i.e. the week of May 4. The high alert zones including Arizona, Massachusetts, and North Dakota should strictly maintain the lockdown orders till the second week of June or later.

Based on the mitigation or aggravation of the disease, constant tweaks are being made on the model since it was set up. However, the final decision of the end of the shutdown depends on the governors, not the researchers. The Institute for Health Metrics and Evaluation (IHME) has recognized that the end of the shutdown should be directed state-by-state, in the same way, it was established in varied timings for different states across the country. Besides, a one-to-fit-all decision will not work in case of a pandemic because the public health system in each state varies along with its capabilities to treat the infected communities. IHME has suggested each city or state to try and identify the total number of infections by detecting the active cases and tracing contacts to prevent the comeback of the disease even if the rate of infection is close to zero soon. Unless that’s taken into account, there’s no possible way to end the shutdown or even loosen the social distancing restrictions. 

That being said, certain critics have pointed out the volatility of the model created by the epidemiologists at the University of Washington. Their projection shows a rise and fall in the total number of COVID-19 deaths in the US from April through the beginning of August. Moreover, other critics believe that a projection that shows a decline in deaths might give a wrong idea to the policymakers which might lead to ending the shutdown before it practically should. But of course, a projection always depends on the ever-changing data and the epidemiologists have confirmed to keep the policymakers updated with the latest insights of the pandemic’s path. 

Economy at the Cost of Human Lives 

Source: Bloomberg

The statement by President Donald Trump about whether “the cure is worse than the problem” might seem very insensitive as it portrays as a tradeoff between saving human lives and saving the economy. But in reality, economists are used to comparing dollars with human lives. Just like every policy decision has benefits and drawbacks, the decision to end the shutdown will also have costs and benefits which can be measured by valuing lives in dollars. 

On one hand, an extended shutdown will without a doubt, worsen the country’s economic condition along with the increased health risks of individuals who’ll lose their jobs. Besides, there has been a higher link of suicide among unemployed individuals based on not just a reduction of income but also the elimination of social status. However, an economic shutdown may also be beneficial leading to a decreased number of car crashes, and reduced air pollution. On the other hand, some of the coronavirus patients who had recovered show significant lung damage, which shows that even if you were to become immune to the disease you might have to deal with a life-long ailment. Therefore, the government’s decision to lift the lockdown could end up causing thousands or ten thousands of people being stuck with weakened internal organs as a consequence of the disease. 

To sum up, a cost-benefit analysis may help us to understand a situation theoretically, but when it comes to real circumstances such as a pandemic, we are bound to focus on moral values rather than monetary figures.  

Impact on the US Economy Due To the Government Shutdown 

Source: Stephanie Keith

The COVID-19 called for official lockdown orders in not only the US but nations all across the globe. In the US, the shutdown led to the most critical economic contraction that the country has faced in a decade. The massive economy dipped by an annual rate of 4.8% just in the first quarter of 2020. In response to the severe economic downturn, the Federal Reserve has taken emergency steps such as reducing the interest rate almost to zero. Moreover, the government has indulged in new spending of $3 trillion which includes direct payments to families as well.

Huge Hit on Businesses  in Economic Shutdown

According to projections by economists, the US economy was anticipated to grow by about 2% in 2020. However, the coronavirus pandemic hammered the global economy to a huge extent. Due to the lockdown on more than 95% of the country, businesses have encountered significant hits. According to General Electric’s report on the first quarter, the company’s revenues had plummeted by 8%, while Boeing reported a revenue drop by 48% and the only option was to cut jobs and lessen the output.

Fed’s intervention led to the increase of share prices at the end of the first quarter, even with widespread warnings. However, this does not portray the true forecast of the US economy in the coming months. Unfortunately, this economic downturn will not be just a sharp shock, but a prolonged downtrend that will take months or years to recover from.

Unparalleled Shock 

The coronavirus pandemic has led to groundbreaking declines in business activities. According to forecasters, business growth will drop by 30% or more till June 2020 causing the economy to fully flatten. Since the beginning of the economic shutdown through Mid-May of 2020, 30 million people in the US have already filed for unemployment benefits. The statistics are deeply shocking but that’s exactly what every individual in the US is facing including government officials, business owners, and consumers. The shrinkage in the US economy of course has a correspondence with the global economic downturn. And the unprecedented shock has swept over the world, just like it did in the US.  

Impact on Consumers 

Two-thirds of the US economy depends on consumer spending. Realistically, during a pandemic and economic downturn people are going to want to save money rather than spending it unless it falls under necessities. The Commerce Department in the US has stated that as of the first quarter of 2020, the total consumer spending has dropped by 7.6%. Clothing and footwear spending has plummeted by 40%, while purchase on food services and accommodation has seen a sharp fall of 70%. Besides, health spending dived as well amidst the pandemic due to the delay of medical care and routine treatments. Unless an individual needs urgent medical care, they are advised to not visit hospitals or clinics so that the chance of getting infected by the virus through contact with an infected person is reduced. The economic agony is expected to get worse by the end of the second quarter of the year and according to economists, the damage will not be fully understood for the next couple of years. 

Role of Safety Net Programs to Reduce the Impact of Economic Shutdown

One of the vital fiscal automatic stabilizers in the US is the safety net, and they can play a huge role in decreasing the negative impact of the economic shutdown due to the coronavirus pandemic. Since the shutdown took place, billions of dollars are pushed back into the economy through increases in spending on Unemployment Insurance (UI) and SNAP (previously known as the Food Stamp Program). The most efficient feature of these programs is that they are tailored towards helping regions and households that need the most help. Moreover, since they already exist it makes more sense to use these programs for the money transfer rather than creating new ones. 

To make UI more effective and less challenging, waiting periods and search rules should be eased especially at a time like this. Moreover, since there’s no work available in this economic shutdown, UI payments should be raised so that more people have access to money quickly. In half of US states, UI is used as part of work-sharing according to which a company can cut worker’s hours instead of laying off which allows those employees to still apply to UI for lost wages. This feature should be expanded across all the states so that employees can still stay linked to their companies.

Before the economic crisis took a toll on everybody’s lives, SNAP had delivered food aid to 38 million individuals all over the US. According to recently changed legislations SNAP work requirements have been waived which helped to provide food resources to support young families, children, pregnant women, and the elderly. To make it more effective, further changes should be brought and the SNAP resources should be extended to families and households with children, or families who have a low income.  

How Can the US Government Help Businesses during the Economic Shutdown 

Small and mid-sized companies took the hardest hit during this economic crisis. The US government can help such businesses through loans or direct grants. Based on the size of a firm that is measured by the industry and the decrease in revenue, the government can provide zero-interest loans. This will be highly beneficial for small and mid-sized firms to strive through the economic crisis and help them remain in existence until the pandemic passes. Furthermore, the government could provide grants to such companies so that it helps them cover a part of revenue losses or payroll expenses. Even a partial help as such would ensure the continuous operation of a huge number of businesses that would possibly shut down without any external monetary aid.

Conclusion 

The outbreak of coronavirus has proved how even the largest economy of the world wasn’t prepared to face such a economic shutdown. The economic shutdown has left even large corporations struggling to survive let alone the smaller ones that had no back up whatsoever. Transportation, entertainment, and consumer services have been hit the hardest. Pulling through the next few months will have its challenges and perils. But unless enough population is immune to the virus, or has obtained a vaccine that is yet-to-be-made, there’s no logical explanation to lift the economic shutdown because it will only make the situation worse.

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