An uphill battle against Covid-19
The author is an economics professor at Korea University.
The new coronavirus (Covid-19) pandemic has been affecting the global community. It is as widespread and fatal as the Spanish flu of a century ago. The flu pandemic that emerged in 1918 shortly after World War I killed more than 40 million, wiping out more than 2 percent of the then 1.8 billion world population. India, which was hit hard, lost 16 million, or 5.2 percent of its population. About 550,000 deaths, or 0.5 percent of the U.S. population, are projected to be related with the flu.
Harvard University professor Robert Barro found that data from 43 countries suggest a 6 percent economic contraction during the two-year flu pandemic. Economies recovered after the infection ended. But recovery in output and income did not come fast. According to state records in the United States, manufacturing output fell 18 percent on average. Due to the loss of working population and the infection scare, production and consumption turned sluggish. Social distancing and curfews were enforced during the time, hurting economies.
The mortality rate from Covid-19 is expected to be milder than the flu pandemic of a century ago. Public health care and personal hygiene have greatly improved. Although deaths have topped 12,000 in Italy, the fatality rate in the total population remains at 0.02 percent. But if the virus spread is not contained and an effective vaccine is not developed on time, the death toll will rise.
It is not easy to predict the exact outcome on the economy while the virus pandemic is still in progress. Data so far suggests that economic consequences resemble the time of the Spanish flu pandemic. China’s industrial output, consumption and investment in the first two months tumbled by double digits from the same period a year ago. JP Morgan projected a 41 percent plunge in China’s GDP in the first quarter against the previous three-month period. China’s economy may rebound fast in the second quarter through aggressive stimuli actions, but its growth for this year is expected to shrivel to 1.1 percent from last year’s 6.5 percent. The World Bank projects 0.1 percent to 2.3 percent growth for China for this year. Since global commerce and supply networks are closely interwoven, China alone cannot recover fast.
The outlook on the U.S. economy is equally gloomy. Goldman Sachs projects a 34 percent dip in the second-quarter U.S. GDP. Once the Covid-19 spread comes under control and economic activities normalize, the economy could grow double digits in the second quarter. But the world’s largest economy is expected to finish the year with a 3.8 percent contraction. Compared to last year’s 2.3 percent growth, the U.S. GDP would have lost 6 percentage points, which is similar to the impact of the Spanish flu.
The negative toll could become milder if the pandemic stops over the next two months. But if the virus spread persists throughout the summer, the world’s two largest economies and the rest of the world could suffer a harder aftermath than the 2008-2009 global financial crisis. The global economy gained 5.6 percent in 2007, slowed to 3 percent growth in 2008 and contracted 0.1 percent in 2009.
Countries around the world are fighting the spread through lockouts, travel control, stay-in orders, school closings, business restrictions or shutdowns. Inconvenience is inevitable in the battle with an invisible virus. But authorities must do all they can to minimize the economic hardship and also prepare a plan to jump-start the economy once infections die down.
It is important to keep up economic policies aimed at defending human and corporate potentials. Fiscal and financial policies must be designed to sustain company payroll, expand unemployment security, expedite loans, and offer incentives in terms of rents, interest rates and taxes for companies and merchants. The central bank’s monetary role is pivotal to ease a liquidity strain and fend off a financial crisis. Cash-stricken families also require aid, while academic and training pursuits must not be interrupted for long.
The U.S. government has launched a $2 trillion coronavirus relief program, which is equal to 10 percent of its GDP, and the Federal Reserve promised unlimited quantitative easing and credit extension. Korean authorities also are employing aggressive fiscal and financial measures. To fight the worst pandemic in a century, timely and bold measures and actions are imperative. The government must mobilize all possible means without causing a serious dent in the fiscal balance and roll out radical investments to stimulate the economy once the disease spread stops. If the world can take a synchronized action, the recovery in trade and the economy will accelerate.
As the fatality rate has come down significantly compared to a century ago, the economic toll from the latest pandemic could be less. The best brains and experts should be gathered together to fight the crisis. Let’s pray our lives and economy will be back to normal after this tiring and painful battle is over.
Translation by the Korea JoongAng Daily staff.