Short- and long-term effects of pandemics
/It looks like we might be starting to see the end of the middle of the pandemic, slowly moving towards the beginning of the end, but not yet there. And people are getting antsy! I think basically everyone wants to be done with this, but it just isn’t clear when or how that will happen.
My concern is that the spread of the virus is slowing because everyone is in lockdown. When we release lockdown, how will we stop a new wave of cases? I ain’t go no answers.
First, we are starting to get data on the current economic situation:
ADB forecasts for 2020. Source: ADB
Real GDP growth in 1Q2020 was just 0.42% in HCMC. “Five of the nine main industries recorded negative growth, including real estate (12.85 percent), education and training (26.57 percent), and accommodation and catering services (31.69 percent).”
Foreign arrivals in the city were down 42%, which is much better than I would expect. I bet that will be down even more in 2Q, not only because there are so few flights.
Fitch expects growth will fall to 3.3% in 2020 from 7.0% in 2019. Again, pretty optimistic, and the fastest among other Asian countries, according to ADB. To be clear, ADB is looking for a higher growth rate than Fitch at 4.8%, but even Fitch’s figure of 3.3% puts it just behind India.
There is also a risk of inflation, not helped by continued high pork prices (which I assume is a leftover from last year’s swine flu).
To counteract these, the government is expanding the stimulus to VND180tr, up from VND80tr.
What will the long term impact be on the country and the world? There has been some economic research on this. I found this paper extremely helpful in understanding what could happen. It looks at 12 large pandemic events with at least 100,000 deaths. The conclusion is:
Natural rates of interest fall in the forty years after a pandemic. About 2% at the lowest point, with the range of two standard deviations between a 1% and 3% decline.
Real wages grow by almost 10% in the 40 years after a pandemic.
Why? Well, two main reasons:
Labor could be in short supply. When demand is greater than supply, prices go up.
People could be saving more, either to replenish savings lost or to be better prepared. In the US, you hear all of these stories about grandparents that pinched pennies because they lived through the great depression.
It’s hard to see if there will really be a labor shock from COVID-19, since the number of deaths is low compared to these past pandemics, especially in Vietnam. But I can clearly see why someone would want to save more. I can’t find the article now, but I saw something about a push to make the US government require companies have 3-months of savings (not going to happen).
I also found this paper on the Swedish economic response to the Spanish Flu to be very interesting. Their conclusions:
Capital returns were negatively affected.
Poverty rates increased. This could be because fewer people are able to work and support families, or because sick people, even after recovered, are unable to work.
But there was no “discernible effect on earnings,” which would go against the first paper, which saw higher real wages.
Then there’s this paper that looks at babies born during/after the 1918 influenza pandemic. It shows reduced educational attainment, more physical disabilities, lower income, among other things. The paper doesn’t talk about why this happens, except it concludes that we should spend more money on fetal health. Hopefully, expecting mothers are able to self-isolate right now, in order to avoid COVID-19.
There are a lot more papers, some medical, some economic, some political, that can be found here.