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COVID-19 and its socioeconomic impact

2021; Medknow; Volume: 4; Issue: 1 Linguagem: Inglês

10.4103/crst.crst_29_21

2590-3233

Abhishek Mahajan,

Global Health Care Issues

INTRODUCTION The ongoing COVID-19 pandemic has far-reaching consequences beyond the spread of the disease itself and the threat to human lives. The pandemic caused one-third of the world's population to be placed under lockdown to limit the spread of COVID-19, which is unmatched by any respiratory virus in living memory. As COVID-19 spread across the globe, apprehensions shifted from supply-side manufacturing disruptions to reduced business. As the experts predict the largest global recession in history, policymakers and lenders are pushing their limits to protect the livelihoods as much as the lives of the population. The factors determining the severity of the current crisis are the epidemiology of the virus, the effectiveness of containment measures, and the development of medical science and vaccines.[1] Predicting any of these determinants is difficult. Currently, most of the countries face multidimensional crises including health, financial, and economic shocks along with a fall in commodity prices, all of which interact in extremely complex ways. Policymakers are exploring all viable options to provide unprecedented support to individuals, entities, and markets, which is crucial for a strong recovery.[2] In spite of this, there exists uncertainty about what the global economy will look like after the current pandemic ends and we emerge from this lockdown. Experts are warning of deep recessions, not caused by an economic or financial crisis, but by the global pandemic. In the current article, we re-examine the major pandemics and recessions in the past 100 years and analyze the correlations between them, with an emphasis on the current COVID-19 pandemic. We also attempt to analyze the correlation of pandemics with recession/depression and how pandemics can trigger an economic crisis. A HISTORY OF PANDEMICS OVER THE PAST DECADE Spanish flu (1918–1920) More than 50 million people are believed to have died and about 500 million were affected from the worldwide influenza epidemic in 1918–1920 including 550,000 who perished in the United States of America (USA). India was also severely affected, losing 6% of its population. Researchers found that "early and sustained" efforts to isolate and quarantine helped to mitigate the mortality rate from the Spanish flu (H1N1 strain) in the developed countries. Many experts are equating the current COVID-19 pandemic to the Spanish flu, as both pandemics affected people across the globe. There could be a counterargument that evolvement in medical science and technologies has improved the ability of mankind to deal with pandemics. The interconnectedness of the world has grown exponentially with time, trade, and globalization. This has increased the effective spread risk of epidemics/pandemics which, in turn, substantially endanger technological progress. The argument becomes more relevant on realizing that the spread of the Spanish flu was facilitated by the movement of soldiers in the World War.[12] Influenza pandemic (1956–1958) Also known as the "Asian flu," this pandemic was caused by a strain of H2N2 that killed nearly 2 million people globally, including 60,000–70,000 in the USA. By the time this pandemic hit in the 1950s, a global response was possible with the creation of the World Health Organization and the Centers for Disease Control and Prevention (CDC). However, in India between May 19, 1957, and February 8, 1958, there were reported 4,451,758 cases, with 1098 deaths. In the two decades before this pandemic, researchers had successfully developed flu vaccinations which helped to reduce the mortality rate between 1956 and 1958.[34] Influenza pandemic (1968) The CDC estimates that 100,000 people in the USA, and 1 million worldwide, died from the H3N2 strain. In the 1960s, the U. S. medical system began recommending an annual flu vaccination for people in the high-risk groups and those over the age of 65 years. These precautions were in place before the 1968 flu pandemic which helped lessen the impact of the flu on human lives. In addition, an increased surveillance and statistical reporting system to track the mortality rate of influenza and other epidemics was deployed, which helped in monitoring the 1968 pandemic.[34] Human immunodeficiency virus pandemic First detected in Central Africa in 1976, the human immunodeficiency virus (HIV) was first recognized globally in 1981. Records state that as many as 36 million people have died from HIV since then. Initially, there was no clarity about what it was or how it was transmitted. We now know that HIV can progress to the acquired immune deficiency syndrome. However, an understanding of how the virus is transmitted, new treatments, and better public education about HIV have resulted in a dramatic drop in the number of new cases worldwide. Officials say that 7.8 million people died from HIV in 2004, which was lowered to 770,000 in 2018.[34] Severe acute respiratory syndrome pandemic Severe acute respiratory syndrome (SARS) caused a novel coronavirus pandemic that was first discovered in southern China in 2002. There were 8096 suspected cases of SARS reported in 29 countries and 774 deaths. Authorities were able to quickly contain the spread through isolation precautions learned from other outbreaks of coronavirus and spreading awareness of personal hygiene. The flu pandemic of 2009, like the pandemic of 1918, was caused by an H1N1 strain. From April 12, 2009 to April 10, 2010, the CDC estimated that there were 60.8 million cases (range: 43.3–89.3 million), 274,304 hospitalizations (range: 195,086–402,719), and 12,469 deaths (range: 8868–18,306) in the USA due to the (H1N1)pdm09 virus. In addition, the CDC estimated that 151,700–575,400 people worldwide died from (H1N1)pdm09 virus infection during the 1st year the virus circulated. Notably, 80% of (H1N1)pdm09 virus-related deaths were estimated to have occurred in people younger than 65 years of age. This differs greatly from the typical seasonal influenza epidemics, during which 70–90% of the deaths are estimated to occur in people aged 65 years and older. It was opined that people over the age of 60 years had greater immunity, perhaps because they had been exposed to an earlier strain or had built up antibodies over the years.[34] RECESSIONS IN THE PAST 100 YEARS The Great Depression of 1929–1939 This is commonly known as the worst financial and economic disaster of the 20th century. It is extensively believed that the Great Depression was triggered by the Wall Street Crash of 1929 and later aggravated by the poor policy decisions of the USA government. It lasted almost a decade and resulted in a massive loss of income, record unemployment rates, and output losses, especially in the industrialized nations. It is estimated that the unemployment rate in the USA hit almost 25% at the peak of the crisis in 1933. Export components from the Indian economy were also severely affected.[56] The Organization of the Petroleum Exporting Countries oil price shock of 1973 The Organization of the Petroleum Exporting Countries (OPEC), primarily consisting of the Arab nations, decided to retaliate against the USA on account of supplying arms to Israel during the fourth Arab–Israeli War, which triggered the crisis. The OPEC members declared an embargo, abruptly halting oil exports to the USA and its allies. This resulted in a severe oil shortage in the USA and an exponential spike in oil prices which led to an economic crisis in the USA and many other interrelated countries. The rise in energy prices resulted in high inflation and destabilized the economy.[56] The Asian crisis of 1997 The Asian crisis originated in Thailand in 1997 and spread rapidly to the rest of the East Asian countries and other trading partners. Speculative foreign capital flows from the developed Western countries to the prominent East Asian economies such as Thailand, Indonesia, Singapore, Hong Kong, and South Korea had triggered an unreasonable optimism that resulted in an uncertain extension of credit and pushing economies to unsustainable debt levels. The Thailand government in July 1997 had to abandon its fixed exchange rate policy against the US dollar, which it had maintained over the period, due to foreign currency resources. This triggered a wave of panic across the Asian financial markets and quickly led to the widespread reversal of foreign investment, mostly in dollars. Investors contemplated possible bankruptcies of East Asian governments and increasing sovereign risk, and fears of a worldwide financial crisis began to spread. Subsequently, the International Monetary Fund (IMF) had to intervene to provide bailout packages to the most-affected economies to avoid default and to reinstate investor confidence.[57] The financial crisis of 2007–2008 The Great Recession, the most severe financial crisis since the Great Depression, which wreaked havoc in financial markets around the world was triggered by the collapse of the housing bubble in the USA. The fallout of the housing sector resulted in the collapse of one of the biggest investment banks in the world, Lehman Brothers, which brought many key financial institutions and businesses to the verge of collapse. Significant government bailouts and policy reviews were needed to resolve the crisis. This recession wiped out millions of jobs and caused the collapse of many key financial entities and the loss of billions of dollars of income.[5678] THE SOCIOECONOMIC IMPACT OF PANDEMICS The economic impact of a pandemic is strongly correlated with how quickly the cause is contained. At a softer level, it can cause tremors, and at larger levels, it can be powerful enough to cause economic wreckage leading to sharp spikes in unemployment and poverty. The biggest pandemic in modern history was the Spanish flu of 1918–1920, during which there were serious economic disruptions with businesses suffering double-digit losses. During a pandemic, the interconnectedness of the global economy is highlighted with tens of millions of people in both the developed and developing countries in a lockdown; ripple effects throughout the global economy are inevitable.[9] Certainly, specific industries bear the brunt of the damage more severely. Malls, theaters, airlines, and restaurants experience decreased footfalls, and may have to close their doors under administrative instructions. Most non-essential markets including business travel and tourism slow down, curtailing revenue not just for the specific sectors but also for smaller businesses that rely on those sectors. Further, those who are engaged or employed in seemingly unrelated industries can also feel the secondary effects of social distancing, lockdown, or fear that has developed in the society. For example, manufacturers (non-pharmaceutical) may see fewer orders as shopping slows down. Asset quality of banks is expected to deteriorate extensively as the repaying capacity of the borrowers worsens.[8] The fear of the unknown can only exacerbate these economic impacts. This indicates that even the population with an evidently stable income may start to limit consumption in case the financial aftershock is not contained. The consumption will also be moderated by the social distancing measures taken by the administration. The impact of pandemics on the economy permeates through multiple channels which include short-term fiscal shocks and long-term negative shocks on the economic growth. Individual behavioral changes (becoming more risk averse), such as fear-induced aversion to workplaces and other public gathering places, are another important cause of negative shocks to economic growth during pandemics. Some pandemic mitigation measures such as lockdown of borders can cause significant social and economic disruption. Earlier in history, in countries with legacies of political instability and weak institutions, pandemics have caused increased political stresses and tensions. In these scenarios, outbreak response measures such as lockdown and curfews have sparked violence and tension between states and citizens.[89] While experts can estimate what the economic fallout from a pandemic such as the COVID-19 will be, the precise impact will vary based on how many people are affected, how severely it hits, and what interventions are necessary to contain its spread. Back in 2005, a World Bank official predicted that a global influenza pandemic, for example, could kill millions of people and cause economic losses worth $800 billion. The impact of the current crisis cannot be judged accurately for some time. However, expert projections are multifold, which are discussed in the following paragraph.[7810] Early-phase efforts of the public health authorities and other agencies to contain or limit an exponential spike (such as backtracking contacts, implementing lockdown, and quarantining infected individuals) entail significant human resource and staffing costs. As an outbreak spreads, new facilities may need to be constructed to manage additional infectious cases; this, along with the increasing demand for consumables (medical supplies, personal protective equipment, and drugs), can greatly increase health-care system expenditures, thus curtailing the ability to fund other expenses. Diminished tax revenues may exacerbate fiscal stresses caused by increased expenditures, especially in countries where tax systems are weaker, and government fiscal constraints are more severe. This was evident during the West Africa Ebola epidemic in Liberia in 2014; while the response costs inflated, there was a fall in demand/consumerism and slowing of the economic activity; in addition, quarantines and curfews reduced the government's capacity to collect revenue. During mild or moderate pandemics, such countries could receive fiscal support from high income countries (HIC)/international agencies. However, during a severe pandemic, even the HIC/international agencies feel the cash crunch, hence they may be unable or unwilling to provide support.[7810] MEASURING THE EFFECT OF THE COVID-19 PANDEMIC Every pandemic is unique, which makes the prediction of the repercussions of any crisis more of an assumption and forecast than science. We do not have many examples similar to the worst-case estimates of the COVID-19 pandemic, which has affected almost all the countries in the world. One of the most comparable is the H1N1 flu pandemic of 2009, which was widespread, but not as fatal; the CDC estimates that there were 60 million cases in the USA, resulting in fewer than 13,000 deaths.[7810] Thus, the most comparable pandemic from modern times is the Spanish flu pandemic from a century ago – caused by a different strain of H1N1 virus –during the period from 1918–1920. As per the CDC estimates, roughly 50 crore people were taken ill with the disease, which ultimately took the lives of about 5 crore people worldwide.[7810] Financial projections for COVID-19 run the gamut. However, it is certain that the pandemic poses unprecedented health, economic, and financial stability challenges. Following the COVID-19 outbreak, the prices of risk assets collapsed and market volatility spiked, while expectations of widespread defaults led to a surge in borrowing costs. Several other existing factors amplified movement in asset prices. Emerging market economies experienced the sharpest reversal of portfolio flows on record resulting in illiquid financial conditions at an unprecedented speed. Intervention through monetary, financial, and fiscal policy actions, aimed at containing the fallout from the pandemic, managed to stabilize investor sentiment in late March–early April 2020.[781011] The IMF has calculated the cumulative loss to global gross domestic product (GDP), over 2020 and 2021, from the COVID-19 crisis to be around 9 trillion dollars, which is greater than most of the economies of the world. The countries that are more dependent on travel, tourism, hospitality, and related sectors have experienced fierce disruptions. Emerging economies such as India, the Philippines, and other Southeastern countries have additional challenges with unexpected reversals in capital flows, as global risk aversions spike to new highs. The economies and entities with high debt levels will become more vulnerable states with sluggish growth. To underline the severity of the current crisis, this is the first time since the Great Depression in 1920 that both advanced countries and emerging markets and developing economies are in contraction. In addition, the IMF in its latest World Economic Outlook has developed a country-specific impact of COVID-19 on the baseline scenario. These projections were made assuming that the pandemic would recede in the second half of 2020 and containment measures taken at various levels would be effective. Since there is extreme uncertainty around the current crisis, there are high chances that the actual numbers may be worse than the projections. Looking at the number of persons affected and the probable spread in the coming days, the above estimate could likely underplay the actual impact. As an effort to contain the spread, most of the countries called for lockdowns which, in turn, created a huge drag on the consumer demand and worker productivity. According to the Bureau of Labor Statistics, in March 2020, the unemployment rate increased from 0.9% to 4.4%. This was the largest over-the-month increase since January 1975, when the increase was also 0.9%. The number of unemployed persons rose from 1.4 million to 7.1 million in March 2020, which was more than 507%. The chief USA economist for Oxford Economics, Greg Daco, forecasted to the New York Times that a recession was all but inevitable. He estimated that the GDP would sink by 0.4% in the first quarter of 2020 before plunging by 12% in the second quarter.[81011] DETERMINANTS THAT CAN PLAY A ROLE Economists have highlighted that negative economic growth is driven directly by a shrink in the labor force caused by illness and related mortality and by fear-induced behavioral changes. These effects reduce the labor force participation over and above the pandemic's direct morbidity and mortality effects and constrict local and regional trade.[81011] The indirect economic impact of pandemics has been quantified primarily through computable general equilibrium simulations; the empirical literature is less developed. World Bank economic simulations indicate that a severe pandemic could reduce the world GDP by roughly 5%.[12] The reduction in demand caused by aversive behavior (such as the avoidance of travel, restaurants, and public spaces, as well as prophylactic workplace absenteeism) exceeds the economic impact of direct morbidity- and mortality associated absenteeism.[101113] Finally, estimates of fiscal and growth shocks are significant but do not include the intrinsic value of the lives lost. Fan, Jamison, and Summers (2016) consider this additional dimension of economic loss by estimating the value of increased deaths across varying levels of modeled pandemic severity. In the study, it was inferred that the substantial portion of the expected annual loss from pandemics is driven by the direct cost of mortality, particularly in the case of low-probability, severe events.[101113] One of the first sectors impacted by an outbreak is the public and private health-care system. A surge in hospital admissions results in sudden peaks in administrative and operational expenditure. A pandemic outbreak of a disease that lasts for a limited period of time usually requires short-term treatment but involves large costs. However, epidemics caused by diseases can also create the need for long-term treatment – sometimes, for the rest of the patients' lives. With a higher magnitute of disease severity or the number of affected individuals, it can turn out to be both: a crisis and a systemic condition. A report in 2017 from the United Nations Development Programme estimated that the Zika virus epidemic would cost about US$ 7-18 billion in Latin America. We can possibly envisage that while, in the short term, the biggest impact would be felt in the tourism sector, in the long term, the most substantial impact would relate to treatment and care for children, at least in the low- and middle-income countries.[101113] In addition, independently from the government, the population may proactively take precautionary measures, including people staying at home to avoid getting the disease or to care for a sick family member. In this context, an article examined the impact of the 2009 H1N1 pandemic on missed days of work in Chile. The researchers estimated that the pandemic increased the mean number of missed days of work significantly, resulting in labor productivity loss worth US$ 16 million. They then extrapolated this finding to the USA and – with caveats – estimated that the pandemic led to labor productivity loss approximately worth US$ 2 billion. Similarly, shops and companies might suspend their operations temporarily to avoid their workforce from being affected by the disease. This can impact consumer spending (it was noted, for example, that during the 2003 SARS epidemic, consumer spending dropped in Hong Kong and Singapore), and have further implications by paralyzing local or international supply chains.[101113] Given that around 60% of the emerging infectious diseases reported globally are zoonoses (i.e., naturally transmitted diseases between people and vertebrate animals), virus outbreaks may result in significant costs to a country and its agricultural sector and trade. The incentive for the agricultural sector (i.e., food and animal production) to invest in infectious disease prevention often correlates with its economic importance to the overall GDP. However, many developing countries that engage in agricultural trade face competing priorities, resulting in lower investment in animal health infrastructure and protection, and therefore may potentially omit to employ adequate biosecurity measures. In the absence of any studies proving that animals can be carriers, current expenditure on these is very limited.[4101113] There have been some initial attempts to estimate the potential impact on the economy, by considering the containment measures taken by China and the prevention and containment measures taken by the rest of the world. As mentioned above, the first visible impact has been on the health-care sector, with a considerable number of patients or potential patients, that stretched the capacity of many hospitals in Wuhan and the surrounding provinces and prompted authorities to build other hospitals/alternative arrangements rapidly. Another major impact is expected to come from the significant disruptions of travel during the Chinese New Year (a time where many Chinese return home for the holidays), as well as the containment measures around several Chinese cities, which are expected to deal a significant blow to the Chinese travel and transport sectors.[4101113] With fewer tourists and lower consumption, the retail, hospitality, and entertainment sectors are also expected to suffer from the outbreak, perhaps even more than during the SARS epidemic, because the sectors have grown significantly over time. Therefore, despite the support provided by the Chinese authorities, these factors are expected to negatively impact the Chinese growth, accentuating the decelerating trend that began a few years ago. However, the damage will not be limited to China. Indeed, given that Wuhan – the epicenter of the crisis – is also one of the largest transportation hubs in the country, the impact is expected to extend to national and international airlines. In addition, tour operators globally are expected to be impacted negatively, as many countries issued travel warnings for popular tourism destinations. Countries whose economies are dependent on tourism (e.g., Greece, France, or Italy) are already adjusting their forecasts. Many international technology companies, or component providers for such companies (e.g., Apple or Samsung), have manufacturing plants in the affected Chinese provinces, and the virus, along with the preventive measures, is expected to hit international supply chains. These effects clearly highlight the interconnectedness of economies.[4101113] The current pandemic crisis due to COVID-19 is inflicting high and rising human costs worldwide, and the necessary measures to contain the spread are severely impacting economic activities. According to the World Economic Outlook, April 2020, of the IMF, due to the current economic fallout from COVID-19, the world economy is projected to contract by 3% in 2020, which is much worse than that during the 2008–2009 financial crisis. In a favorable scenario – assuming that by the second half of 2020 the pandemic will fade and restrictions and containment effors will be gradually reversed— the global economy is projected to grow by 5.8% in 2021 as economic activity normalizes, supported by policy interventions. However, the possibility of more severe outcomes remains substantially high. Effective policy interventions are essential to forestall the possibility of worse outcomes and to limit the effect of the pandemic on the livelihood of the population. So far, the severity of the impact on certain economies/sectors has been critical, therefore, policy changes at fiscal, monetary, and financial market measures are required to support the affected sectors. The fiscal stimulus – like temporary direct cash transfers to liquidity-constrained, low-income households who have been severely affected under lockdown measures – could be highly potent at countering a demand shock. Multilateral cooperation and support at the international level is essential to overcome the effects of the pandemic on the population so that the people are not pushed into poverty.[14] STEPS TO REDUCE THE IMPACT OF THE CRISIS In an ideal scenario, legislatures and central banks would use their fiscal and monetary power to help mitigate an economic fallout. In March 2020, USA policymakers agreed to infuse a $2 trillion stimulus bill called the Coronavirus Aid, Relief, and Economic Security Act to blunt the impact of the economic crisis set in motion by the global COVID-19 pandemic. The Indian government announced a five-part package and provided details of 20.97 lakh crore. Most of the central banks are advocating rate cuts and relaxations in prudential regulations to encourage credit growth and liquidity. However, the effectiveness of these measures is yet to be proven during a pandemic. There is no ready-in-hand solution to sail through such a crisis. Unlike other crises (other financial crash in 2008), the COVID-19 pandemic called for lockdowns across the globe and brought the world to a standstill with marginal economic activity. With activity or trade, any monetary or fiscal intervention has very little impact. The most determinable factor is how quickly the pandemic can be contained.[71314] Notably, interest rate cuts, intended to boost liquidity at a time when money is tight, may lose some of their potency when rates are already conspicuously low, at least in many developed markets. The Fed slashed a key rate to zero, giving it very little room to maneuver. Other tools that the government can put to use during the COVID-19 crisis are to activate short-term financing mechanisms that help businesses stay afloat, retain workers during the health-care crisis, bolster unemployment insurance, and provide other safety nets that keep the most vulnerable residents float.[71315] Globally, the current funding for pandemic preparedness and response falls short of what is needed. In 2016, the International Commission on a Global Health Risk Framework for the Future recommended an additional US$4.5 billion annual global investment for upgrading pandemic preparedness at the country level, for funding infectious disease research and development efforts, and for establishing or replenishing rapid-response financing mechanisms such as the World Bank's The Pandemic Emergency Financing Facility (PEF) Text.[16] Instituting response measures after a pandemic has begun, can be expensive, with most of the direct cost borne by the health-care sector, although response costs typically are not reported in a cohesive manner. As noted, the response to the 2014 West Africa Ebola epidemic cost more than US$3.8 billion, including donations from several countries (U.S. Agency for International Development and CDC 2016). In addition, the World Bank Group mobilized US$1.6 billion from the International Development Association and the International Finance Corporation to stimulate economic recovery in the three worst-affected countries of Guinea, Liberia, and Sierra Leone (World Bank 2016). Taken together, at US$5.4 billion, these values amount to a cost of US$235 per capita for these three countries.[71315] Pandemic severity itself can play a role in the drivers of cost and the effects of mitigation efforts [Table 1].[1617] One study based on modeling simulations in an Australian population found that, in low-severity pandemics, most costs borne by the larger economy (not just the health-care system) come from productivity losses related to illness and social distancing. In high-severity pandemics, the largest drivers of costs are hospitalization costs and productivity loss because of deaths (Milne, Halder, and Kelso 2013).[131516]Table 1: A summary of widely accepted measures to mitigate the impact of pandemicsCONCLUSION The COVID-19 pandemic has led to one of the largest global recessions in history. Most of the countries face multidimensional crises including health, financial, and economic shocks including a fall in the commodity prices, all of which interact in complex ways. There is a direct correlation between the social and economic impacts of any pandemic leading to a fear of recession and financial collapse. It is important to be prepared for such unprecedented circumstances and to strengthen the medical research and health-care system. Financial support and sponsorship Nil. Conflicts of interest There are no conflicts of interest.