The Global Macroeconomic Impacts of COVID-19: Seven Scenarios

Bottom Line:

COVID-19 will have massive economic effects on labour supply, commerce, and GDP.

Reference:

McKibbin, W.J. & Fernando, R. The Global Macroeconomic Impacts of COVID-19: Seven Scenarios. CAMA Working Paper No. 19/2020 (2020). https://dx.doi.org/10.2139/ssrn.3547729

Date Published:

4 March 2020

Synopsis:

This article produces a predictive economic model for the COVID-19 pandemic by using historical pandemic data with current data. The previous SARS epidemic in 2003 resulted in various economic effects including reductions in consumerism, increases in business operating costs, and increases in insurance risk premiums. This is reflected in the current pandemic as the labor supply has been impacted by the disease’s morbidity and mortality rates. The scenarios highlight massive increases in government expenditure for both healthcare infrastructure and prevention of outbreak. Decreases in consumption and aggregate demand result in decreases in equity markets. This is quickly followed by cuts in interest rates from banks to maintain consumers from transferring their funds to less affected markets. Equity markets plummet from predicted losses in profits as well as increases in risk. The article utilizes the scenarios to predict the impact on GDP, with the worst case scenario yielding a drop of 7.1% for Canada, and 8.4% for USA. This translates to a loss of $128 billion and $1.769 billion USD respectively. The reduction in global GDP ranges from $2.4 trillion USD to $9 trillion USD depending on severity. 

Summary by: David Liu