Economics in the Time of COVID-
The size and persistence of the economic impact is unknowable. Like a healthy person
who catches the seasonal flu, suffers a nasty but short-lived discomfort, and is quickly
back to full power, the crisis could be short and sharp. Such a ‘V-shaped’ hit seemed
likely when COVID-19 was essentially a Chinese problem and China was dealing with
it forcefully. Times have changed.
While a short-and-sharp crisis is still possible, it’s looking less like the most likely
outcome. The disease is spreading rapidly in dozens of countries. Three chapters in the
eBook put numbers to this, and we’ll summarise those below, but the bottom line is that
while there is too much uncertainty to be certain about outcomes, it is clear that this
economic shock could cause lingering pain and perhaps leave deep scars – far larger
than the other post-war pandemics (see Box 1 for a list).
The shock hits G7 plus China
This pandemic is different, economically speaking. Previous post-war pandemics
(Box 1) hit nations that were – at the time – far less economically dominant. And those
pandemics were far smaller; the number of COVID-19 case is already eight or nine
times larger than the number of SARS cases. At least as important is one sobering fact:
this time, the hardest-hit nations include the G7 plus China.
Medical data changes hourly, but as of 5 March 2020, the ten nations hit hardest by
COVID-19 is almost identical to the list of the ten largest economies in the world (Iran
and India are the exceptions). The US, China, Japan, Germany, Britain, France, and
Italy are all in the top-ten most affected by the disease. While China is by far the hardest
hit, the last few days have seen an exponential growth of cases in the G7 economies.
Taking just the US, China, Japan, Germany, Britain, France, and Italy, they account for:
- 60% of world supply and demand (GDP)
- 65% of world manufacturing, and
- 41% of world manufacturing exports.
To paraphrase an especially apt quip: when these economies sneeze, the rest of the
world will catch a cold.
- These economies – especially China, Korea, Japan, Germany and the US are also
at of global value chains, so their woes will produce ‘supply-chain contagion’ in
virtually all nations.