Disease induced pandemics lead to economic collapse

The advent of a pandemic is a good time to analyze your financial situation and plan for the worst. It’s never too late. The Interconnected Economy Certain industries, such as travel and hospitality, felt the pandemic’s impact most directly. Shops and restaurants closed their doors altogether or opened with low seating capacity and low demand to dine in. Nonessential travel evaporated, causing massive lost revenue for not only airlines and cruise ship operators but also smaller businesses that rely on tourism dollars. Those employed in seemingly unrelated industries also felt the secondary effects of social distancing. For example, manufacturers—especially outside the medical field—saw fewer orders as shopping slowed down and demand dwindled for nonessential goods, such as new clothes. Banks absorbed the loss of mortgage payments due to government-mandated forbearance rules. 7 And oil companies saw prices plummet as demand weakened due to a sharp decline in everyday travel. 8 Fear of the unknown only exacerbated these economic impacts. Even individuals and families with ostensibly stable employment limited their purchases in case the financial aftershock couldn’t be contained. Measuring the Effect of a Pandemic Every pandemic is unique, which makes measuring the repercussions of this type of crisis especially challenging. What’s more, there simply aren’t many examples that compare to the worst-case estimates of COVID-19’s effects. For example, the H1N1 flu of 2009 was widespread but not as deadly. The U.S. Centers for Disease Control and Prevention (CDC) estimates that there were 61 million H1N1 cases in the United States, resulting in fewer than 13,000 deaths. 9 The closest modern comparison to the COVID-19 pandemic occurred more than a century ago, when the so-called Spanish Flu (another H1N1 virus, though a different strain than the 2009 version) ravaged the globe from 1918 to 1919. According to CDC estimates, roughly 500 million people became ill with the disease, which ultimately took about 50 million lives worldwide. 10 Economic data from the early 20th century is scarce. However, an analysis by the Fed of St. Louis estimated that many businesses, particularly service- and entertainment-oriented ones, “suffered double-digit losses in revenue.” 5 Back then, the economic disruption was short-lived, as the underlying health emergency subsided in 1919. How does the current pandemic compare? Though the mortality rate of COVID-19 has been significantly lower than that of the Spanish Flu, its economic toll is already severe. 11 Because the underlying virus is so contagious—a group of researchers from the University of Hong Kong and Harvard University estimated that one-quarter to one-half of the world’s population would likely contract the virus “absent drastic control measures or a vaccine”—governments around the world took drastic measures to control its spread. 12 But those actions, which included keeping most shoppers and restaurant patrons at home, came at a big economic price. 50.3 million The number of COVID-19 cases reported in the United States as of March 19, 2022, which so far have resulted in over 969,000 deaths. 13 The World Health Organization (WHO), meanwhile, reported roughly 271 million confirmed cases and 6.06 million deaths worldwide. 14 The Economic Impact of COVID-19 Many workers and potential shoppers sequestered themselves in the early days of the COVID-19 pandemic, which had a momentous impact on the global economy, as well as that of the United States. For example, U.S. retail sales plunged in April 2020 before recovering by July 2020. 15 On top of that, Fed data showed the worst dip in manufacturing output since the 1940s, although it has since rebounded. 16 Of course, that sudden drop in demand had a disastrous effect on employment. The national unemployment rate climbed as high as 14.8% in April 2020 before dropping to 6.2% in February 2021. By November 2021, it had dropped to 4.2%. 17 Additional estimates indicated more than 25.7 million workers were affected by the pandemic. This figure included those whose hours or compensation were cut and those who were completely unemployed, among others. 18 Those economic shockwaves were felt from Beijing to Madrid, creating a drag on the world economy that hasn’t been seen for decades.