It may take two years for the economy to recover from a coronavirus pandemic

Steven E. Sarterio is chair of the accounting audit at Steven JR Smith and a business professor at Queen’s University.

Kingston-Get forecasts about the effects of coronavirus pandemics on the global economy almost every day. How can we understand them during this economic storm? After all, research shows what the economic forecast did During events such as SARS Often Very inaccurate.

To adjust current forecasts such as the 6.2% decline forecast of the International Monetary Fund gross domestic product For Canada — I looked at a history of similar global economic shocks, studied macroeconomic models and reviewed almost 75 studies To better understand what happens in the post-pandemic world.

1918-20 Economic impact of influenza

of 1918-20 outbreak of influenza It killed at least 40 million people, or about 2% of the world’s population. In canada Alone, at least 50,000 deaths have been attributed to the flu, approaching the death toll of Canadians in World War I. Since no solid data on GDP existed at the time, economic historians would need to reproduce economic measures based on the data collected.

of Most thorough research It focuses on how the 100-year-old flu pandemic affected Sweden. A Swedish study took advantage of the fact that the country holds very detailed data on the causes of death and the history of accurate economic records dating back to the 1800s.

Since Sweden was a neutral country in World War I, unlike other Western countries, the war had a limited impact on the country’s economy. Sweden’s influenza mortality rate was comparable to most Western European countries, and its economy was similar to other developed countries.

Studies of the Swedish influenza experience a century ago suggest that there may be a lasting negative long-term economic impact of the current pandemic. Income from capital sources such as interest, dividends and rents fell by at least 5%, which lasted until at least 1929. This was a permanent decline that did not recover after the influenza pandemic.

Influenza Outbreak Emergency Hospital, Camp Funston, Kansas (1918). Original image from the National Museum of Health and Medicine. Digitally enhanced by rawpixel.

Poor people in Sweden never recovered

At the bottom of the economic pyramid, these Swedish absolute poverty also increased. Enrollment in government-run “poor people” in areas with high influenza rates increased by 11% and did not decline over the next decade. The good news was: during the crisis, employment income declined, but it quickly recovered to the expected normal level.

Ah Recent research An attempt to measure the impact of influenza on GDP from 1918 to 21. Harvard economist Robert Baro and his colleagues have elaborated a set of economic data that seeks to replicate GDP in 42 countries.

They found that influenza was responsible for an additional 6% drop in global GDP. The study concludes that the impact was reversed by 1921. This estimate of the historic effect of influenza on GDP is strikingly similar to the IMF’s current forecast of a 6% reduction in Western GDP as a result of the coronavirus pandemic.

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Modeling the economic effects of a pandemic

Beyond economic history, we can see macroeconomic models of global, regional, or national economies that carry out scenarios about pandemic shocks.

One scenario Studies by British economists and health science scholars are particularly well suited in the context of COVID-19.

Their scenario models virus incidence and mortality close to current best estimates, with strong and early social events such as school closures and telecommuting arrangements found in many countries fighting pandemics today. Includes distance measurement.

Their model estimates that UK GDP will decline by 21% and the first-year GDP will decline by 4.45% over the first quarter of the pandemic. The model also suggests that the recovery will take about two years. Current UK IMF forecasts have reduced annual GDP by 6.5%.

There is no doubt that COVID-19 has had a major impact on the world economy. In all the studies I have examined, the conclusion that GDP has dropped significantly to around 4.5-6% and has fully recovered within two years seems well justified.

The economic history of the 100-year-old influenza pandemic suggests early mitigation of social separation measures and failure to develop effective vaccines that caused the second and third wave of influenza . These waves could have a greater impact on the modern service-based economies of the Western world than they could on the more agricultural economies of 100 years ago.

Economic history serves as a potential warning that the economy could worsen if these measures were ignored.

It is important to remember that GDP is an indicator of the economic situation of the whole country. At the individual level, the impact may be more widespread and distressing. There are financial and professional losses that can never be recovered.

The 1918-20 flu provides an important historical lesson to the world’s current economic outlook. Not only will the rate of return on capital for the next decade decline significantly, but the poverty of the poorest people in our society may increase relatively.

Steven E. Sarterio is chair of the accounting audit at Steven JR Smith and a business professor at Queen’s University.