The new coronavirus outbreak labeled a pandemic by the World Health Organization, is a serious public health problem and the human suffering caused by the spread of the disease will be enormous. There's going to be jobs lost and grants in place regarding the loss of revenue, and many factors are going to have ripple effects on our economy.
The extent of an economic crisis will depend on the steps authorities will take in the context of containment for the COVID-19 disease, how people hopefully reasonably respond, and how much economic support governments are willing to deploy during the pandemic's impact and the immediate aftermath.
We Are Shutting Down Part of the Economy for the Sake of Public Health
U.S. president, Donald Trump, has declared a federal emergency over the novel coronavirus outbreak. The country is trying to contain the virus and slow the spread. As part of the nation's efforts to enforce social distancing, the restaurant industry, air travel, hotels, gyms, cruise lines have been hit with a series of devastating blows. We are producing less, spending less, and consuming less. Reasons for spending less range from a loss of household income and new debt to fear of contagion, job loss or heightened uncertainty.
Today, everyone is staying in; it is a health emergency as well as a financial crisis - and no one knows how grave this will be and how long this will last.
Beyond the human tragedy, there is a direct economic impact from business closures - whether through government bans or business decisions - as well as from imposing bans on certain types of activities. These short-term measures to stop the spread of the virus in an effort to save lives and protect the most vulnerable will substantially destroy economic growth. The main costs of economic instability will be:
- Unemployment
- Fall in income - shorter work weeks
- Fall in asset prices (e.g. fall in house prices/stock market)
- Increase in relative poverty
- Higher government borrowing (less tax revenue)
- Permanently lost output
- Firms go out of business
The Coronavirus Pandemic Poses a Serious Economic Challenge
In turns of effects, with businesses closing and people losing the ability to earn wages and thus pay bills, it is very likely that the country will be in a recession for some period of time. In the last two weeks, more than 280,000 people filed for unemployment benefits. Experts expect April to be the first reporting month when the damage starts to show up. On the economic front, we are headed to a global recession.
A recession is a business cycle contraction when there is a period of temporary economic decline during which trade and industrial activity are reduced. Recessions result in increased unemployment, lower wages and incomes, lost opportunities and increased vulnerability. Although the recession doesn't necessarily drag on for long periods of time, the impact of economic recession on business can be lengthy. Impact of economic recession examples:
- Employee lay-offs and benefit reductions
- Cuts to the quality of goods and services
- Reduced consumer access
- Cash flow reduced as customers delay making payments or purchases
- Demand for products or services decrease
- Shrinking access to credit and bankruptcy
We Must Prevent a Temporary Crisis From Permanently Harming People and Businesses Through Job Losses and Bankruptcies
Substantial targeted policies are needed to support the economy through the coronavirus pandemic. In cases where someone has suffered some economic difficulty resulting from income loss, job instability or unemployment, they remain informed about programs aimed at addressing their challenges, such as unemployment assistance or the responses from financial institutions working to help people get through the inevitable crisis. It is essential to place a priority on your personal finances as best as you can. For example, saving for emergencies as well as paying down debts and separate what you need to do into a short- and long-term scenario.
On the business side, there are lots of affected businesses in pretty major industries, and we have to make sure that those businesses are surviving because a lot of them are otherwise completely vulnerable, and not ready for a complete months-long shutdown. In the United States, a trillion-dollar plan proposed to prevent a severe economic downturn continues to evolve these days. The Trump administration proposed a stimulus plan that could include loans for businesses and $500 billion in direct payments to taxpayers based on income level and size.
Consequently, the best chance at limiting the economic fallout from the epidemic's impact may come from coherent, coordinated, and credible leadership and policy responses, including invoking measures that will hopefully return society to some normalcy.