In the beginning of 2020, few heard about the novel coronavirus from the Chinese city of Wuhan. In less than two months, it turned from a curious local incident into a global crisis of unprecedented scale. Not because of its high lethality or severity – in these respects COVID-19 lags far behind many other infectious diseases, including its immediate relatives, SARS and MERS. The effects of SARS-CoV-2 (the official name of the novel virus) are relatively mild, with the majority of cases being asymptomatic or showing limited flu-like symptoms. It may sound cynical, but the real horror of the new disease is not its death toll. Over the first three months of 2020, COVID-19 killed about 50,000 people worldwide. In comparison, heart disease kills about 18 million people yearly (this is 1.5 million people every month). Yet we do not seem to be running around in panic, prohibiting fast food, restricting transportation and paralyzing the economy. Even in the worst-case scenario, allowing for uncontrolled spread of the new infection, one has a tremendously greater risk of dying from heart attack or a myriad other causes than from COVID-19.
The new disease has an average fatality rate of about 4 percent – and we should take into account that this rate is probably greatly exaggerated, because even early research shows that many people may have been infected with the virus and gone through the disease without ever realizing they were sick. Many people who caught COVID-19 were preliminary diagnosed with it but not tested, and thus did not get into the official statistic.
No, the real horror of the new disease is what it does to business and economy in general. In a sense, here the problem is not so much with the virus itself but with the fear and hysteria it causes, as well as the measures governments take to curtail its spread.
The initial and relatively mild effects of the coronavirus infection spreading over the world included cases of irrational behavior, primarily of stocking up on certain goods: medical masks, non-perishable food, toilet paper, salt and other similar commodities. Although the authorities usually urged the populace not to succumb to panic and tried to persuade people that there were no reasons to be afraid of shortages, most people do not trust their governments and stocked up just in case. However, as the virus continues to spread, most governments find themselves forced to take their own measures to slow this process down. Unfortunately, the only way to do it is to impose limitations on social activities, which, in turn, means that absolute majority of businesses has to either close down or severely limit their operations. Quarantines, social distancing, closing down of cafes, restaurants, shopping centers, cancellation of events – all this means huge losses for the organizations involved. Businesses closing down (both for the duration of the emergency and permanently) means loss of workplaces – the USA alone already report more than 10 million people losing their jobs.
All in all, what we see is an economic crisis of unprecedented severity, comparable probably only with the Great Depression. Even after the initial outbreak of the virus is over, it will take a long while before life takes its normal course. What is worse, for many businesses it will be too late – after the restrictions are lifted, many of them will simply not be there to reopen. Of course, after a while, new companies will arise to take their places, but what we are facing now will significantly change the economic environment for decades to come. The situation already received the name of Coronavirus Recession – and only time will show how severe it is going to be and how it will reshape the world economy.
Coronavirus outbreak has a doubly negative effect on world economy: firstly, it makes carrying out normal activities impossible, which leads to the results describe previously. Secondly, this crisis demands complete attention from the government, leading to huge unanticipated costs that put further strain on national budgets. Governments in this situation face a twofold problem: firstly, they have to contain the pandemic to prevent the collapse of their healthcare system and widespread panic. Secondly, they have to find a way to reopen the economy after the initial outbreak is over, and do it as fast as possible. Every day businesses stay closed means mounting costs, more lost jobs and fewer chances to get back to normal life after it all is over. It is impossible to simply close down everything and impose a quarantine until the scientists create a vaccine or an effective treatment: vaccine development, even in an emergency like this, takes years. There may never be any vaccine – humankind is yet to find one for HIV, and the best minds have been at work on it for decades. Chances are, the majority of population will have to go through the new disease naturally. What national governments have to do is find a balance between controlling the spread of the disease and keeping the economy alive until it can be restarted.
Probably the most striking characteristic of the current crisis is the speed at which it developed. The Great Depression may have seen some rapid turns for the worse, but it still unfolded over four years. It took the virus a little more than two months to effectively paralyze the world economy, and the pandemic is not nearly over yet. While the world probably saw economic crises of similar severity, it is hard to point out one that unfolded just as quickly. Right now we are flying blind, not knowing what to do and how both the virus and the economy will react to new measures. In a few months, if social distancing restrictions are not lifted, we may find ourselves in a situation in which governments will be forced to restart certain sectors of economy. It will mean sacrificing the lives of people from the risk groups, simply because keeping the economy in hibernation will no longer be an option.
The information we have so far suggests that the danger of the novel coronavirus is greatly exaggerated. For example, it is not clear how much the novel coronavirus contributes to the death toll and how trustworthy the statistics are. Can we be sure that a person who had the coronavirus died of the coronavirus? The collapse of healthcare system in Italy is nothing new – the same happened there during the outbreak of seasonal flu back in 2018 but never got out of the local news. According to the statistics, the total number of deaths in the United Kingdom over the duration of the pandemic is even lower than the average for the same period over the last five years.
In other words, the severity of medical implications of COVID-19 is still unclear. Of course, this can change as we find out more about the disease and see how the situation progresses.
What is completely clear is that quarantines, lockdowns, social distancing and other measures aimed at fighting the disease will lead to a host of quite definite results, such as:
In other words, even if we focus on saving lives, the dilemma is not as obvious as it may seem. The measures against the coronavirus, in the long run, are likely to kill more people (or at least decrease their life expectancy) than they are going to save.
Just like in case of any other crisis, among the first hit by Coronavirus Recession was the stock market. The most important world indexes showed more than 20 percent drop over March, the month when the spread of the disease reached global scale. Investors are afraid to lose their resources and are apprehensive of both starting new ventures and continuing with the old ones. While many national banks across the world dramatically decreased their interest rates in response, most people are still doubtful about the ability of governments to address the issue and stop the rapid decline of economy.
Not all industries were affected equally. One of the first reactions to the changing situation was the call to transfer organizations to remote work models. Some industries, such as software development or design, are naturally better suited for this approach and did not have much trouble adapting to the new situation. In fact, they got a valuable opportunity to check the comparative productivity of their traditional models and remote work. Other industries, like retail, have a harder time adapting, but most of them found ways to continue working: e.g., by switching to online orders and delivery. However, the very nature of work of some organizations makes it impossible to function under the lockdown in which the majority of world population lives right now. Tourism, travel, entertainment, catering industry – the lockdown hit them especially hard. Many countries either severely limited or stopped any international and sometimes even domestic flights, put restrictions on transportation, forcibly closed down restaurants and cafes and even imposed curfews. It is hard to predict how the industry will survive the crisis and what it will look like when it is over.
Nevertheless, entertainment, tourism and catering are not the only industries whose very nature can change after the Coronavirus Recession is over. Many experts predict that the world after the pandemic will be much less globalized than it is now. As companies heavily dependent on international supply chains are among those that were hit the hardest, many large corporations are going to reevaluate their approaches to ensure greater security in future.
However, the hunt for security may be harder than expected for both companies and investors. Even traditionally safe investments, like gold, took a hit when the global nature of the crisis became obvious. However, gold’s price quickly jumped back as it reestablished its normal role as a go-to investment solution for uncertain times.
Similarly, oil’s price dropped to the values we did not see for almost two decades. As transportation, travel and production go to a standstill globally, the need for fuel decreases, and for the countries dependent on oil and gas income the upcoming crisis is going to be even harder than for the rest of the world.
When the economy grows, it usually means more jobs, greater quality of life and more wealth. It is only natural that the current situation is going to lead to a slowdown, but how significant it will be remains to be seen. Most likely, we will see the slowest growth since the crisis of 2009. However, some experts make even less enthusiastic prognoses, and we have to be ready for one of the worst recessions humanity has ever had to deal with. In other words, while COVID-19’s death toll remains relatively mild when compared to many other epidemics the world had to deal with previously, its economic implications are likely to be dramatic and long-lasting.