Highlights
  • Past epidemics had long-lasting effects on economies through illness and the loss of lives, while Covid19 is marked by widespread containment measures and relatively lower fatalities among young people. 
  • The short-term costs of Covid-19 will probably dwarf those of past epidemics, due to the unprecedented and synchronised global sudden stop in economic activity induced by containment measures.
  • The current estimated impact on global GDP growth for 2020 is around –4%, with substantial downside risks if containment policies are prolonged.Output losses are larger for major economies.
New research by the Bank of International Settlements suggests that the  Covid-19 pandemic is not only the most serious global health crisis since the 1918 Great Influenza (Spanish flu), but is set to become one of the most economically costly pandemics in recent history. Experience with past epidemics provides some insights into the various channels through which economic costs could arise, in the short as well as longer term. At the same time, Covid-19 differs from previous episodes in several important ways. Notably, the globally synchronised lockdowns and trauma of financial markets reinforce one another into an unprecedented economic sudden stop. For these reasons, the Covid-19 global recession is unique. However, past epidemics can shed light on transmission channels to the economy, especially when stringent containment policies are not in place. This Bulletin provides an early review of empirical studies on the economic costs of epidemics. We first review studies on past epidemics, and then turn to the latest quantitative estimates of Covid-19’s impact on global growth. Past epidemics had long-lasting effects on economies through illness and the loss of lives, while Covid-19 is marked by widespread containment measures and relatively lower fatalities among young people. The short-term costs of Covid-19 will probably dwarf those of past epidemics, due to the unprecedented and synchronised global sudden stop in economic activity induced by containment measures. The current estimated impact on global GDP growth for 2020 is around -4%, with substantial downside risks if containment policies are prolonged. Output losses are larger for major economies. "The cost-benefit analysis in health policies certainly goes beyond accounting for economic gains and losses. But even from a narrow economic perspective, the adequate course of action is far from settled. On the one hand, the high output losses from global efforts to contain the Covid-19 pandemic are unprecedented. On the other hand, it is unclear if the counterfactual scenario would be less costly – an uncontrolled pandemic such as the 1918 Great Influenza resulted in substantial and persistent damages. A better understanding of the transmission channels of the Covid-19 shock to the economy, the interaction between economic decisions and the epidemic, and the policy trade-offs is therefore needed." the BIS report states.

BIS research papers

Read the full paper at: https://www.bis.org/publ/bisbull07.htm

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