Of pandemics past and COVID-19’s economic impact

As mass hysteria over COVID-19 reaches its peak, it would be interesting to look at the history of pandemics and how much havoc they have wrought throughout the ages.

The first pandemic was recorded in 460 BC when a severe outbreak of typhoid fever decimated the inhabitants of Athens while the city was under siege by Sparta during the Peloponnesian War. In 1346, the Bubonic Plague reduced Europe’s population by a third, killing as many as 75 million people.

There have been 10 influenza pandemics since the early 18^th century and three in the past 100 years — in 1918, 1957, and 1968. All were caused by mutations of one strain of the influenza virus. The Spanish flu of 1918 was the deadliest on record, causing 80 million deaths during its two year rage. Its death toll was more than that of World War 1. In 1957, the Asian Flu Pandemic killed nearly two million people. In 1968, the Hong Kong flu killed four million people over three years.

Southern China has always been an incubator of flu viruses due to its high population density and the residents’ practice of living in close proximity to domesticated animals. Making matters worse is their fondness for ingesting wild animals, either for food or perceived medicinal value. Wild animal markets are aplenty in Southern China and this makes the residents vulnerable to contamination with mammalian, avian, or reptilian viruses. The Asian and Hong Kong flus originated in China, as did SARS. It’s hardly surprising that COVID-19 originated from China too.

COVID-19’s virus, SARS-CoV-2, is a new strain. It is similar to the ordinary flu in the sense that both are respiratory illnesses. They even share the same symptoms. Unfortunately, those who have had previous exposure to the flu do not develop a natural immunity against this particular coronavirus. Worse, carriers can infect others before they show symptoms, making it more difficult to control the spread.

But flu pandemics like COVID-19 are tamer compared to other infectious diseases like HIV-AIDS, and those caused by the Marburg virus, and the Zaire-Ebola virus. These viruses kill anywhere from 43% about 90% of those infected. (The death rate for HIV-AIDS has fallen drastically with the use of antiretroviral drug cocktails in recent years. — Ed.) Based on our four months of experience with SARS-CoV-2, we know that only two to four percent succumb to the disease, the rest recover fully.

Experts do not see the corona virus’ death toll to be in the millions like past pandemics. Vast improvements in international cooperation, pandemic management, and medical advances have made us more resilient against infectious diseases. Still, even one death on the back on COVID-19 is one death too many. As I write this, 3,073 people have already succumbed to the virus and a vaccine is still one year away from becoming commercially available.

How will it affect the global economies?

Many think that COVID-19 is similar to the SARS epidemic which disrupted our lives for just a few months. SARS-CoV-2 is different in that it is more infectious and more aggressive. It will have more devastating effects on economies worldwide. SARS started in Guangdong in 2002 and recorded 8,000 cases. During that year, China’s share of global manufacturing output was only 9%. SARS-CoV-2 has already infected more than 100,000 as of this week and China’s share of global manufacturing output has ballooned to 28%. In other words, from just 9% in 2002, nearly one-third of all goods manufactured on the planet originate from China today. China has become so important to global supply chains that should its manufacturing engine cease, the industrial world as we know it would grind to a screeching halt.

China’s lockdown has caused factories across the globe to cease operations. One by one, factories are already running out of inventories of China-made parts and components. Those without alterative suppliers will have no choice but to shut down causing sales and profits to plummet and relegating millions to unemployment. Fiat-Chrysler, Samsung, Apple, Pharmac Pharmaceuticals, and Hyundai have already announced temporary stoppage in production. All things told, COVID-19 is said to reduce global output by $1.38 trillion or 1.5% of GDP.

Nouriel Roubini (the same economist who predicted the subprime crisis), said that the effect on global economies will be more severe than we think. He believes stock markets will crash by 30& to 40% this year.

The Philippines will not be spared. Our export sector will be badly affected as it is reliant on China-made components. Exports of tropical fruits and commodities like iron ore and copper will plummet too as China is our biggest customer. A blood bath in the tourism and airline sector is already upon us. Infrastructure projects using Chinese made suppliers and Chinese financing will also be delayed. Tax revenues will decrease due to less import taxes from China (which is already down by 44% since January).

Making matters worse is that hysteria and panic have caused a decline in demand for travel-related services, hospitality, and discretionary consumption. Sales of restaurants, hotels and consumer goods are plummeting, affecting millions of Filipinos who work in these industries

The National Economic and Development Authority (NEDA) previously projected that growth would be slashed by 0.2% if the virus would not be contained within a quarter, up to 0.4% if it drags on until the 1^st half of the year and 0.07 percent if it last for an entire year. However, central bank governor Ben Diokno said that NEDA’s assumptions were based on effect of SARS 16 years ago, which grossly underestimates the effect of COVID-19. The impact on the economy today will be much worse. Experts agree that it can slash close to 3% of GDP growth this year.

The year of the metal rat is proving to be a horrible year for humanity. COVID-19 has affected every aspect of our lives and its economic consequences are worse than the 1957 Asian Flu, the 1968 Hong Kong flu, and SARS, put together. Lets hope a vaccine is developed soon.

Andrew J. Masigan is an economist.