As the coronavirus pandemic spreads in different parts of the world, it appears to have the same disruptive effects on the economy as it has on people.
After some serious plunges in the stock market and a large number of deaths, the coronavirus pandemic can have a negative impact on the economy in the U.S. An oil price war is on a rise amid coronavirus, it is quite clear that it can pose tremendous risks for U.S. economy. Even the investors of the global market are panicking over the economic impact of the COVID-19.
You are probably here because you need to know how the spread of the coronavirus can have an impact on the U.S economy. Well, the best place to look for answers is China as coronavirus originally originated in Wuhan, China. As the virus spread most widely in China, there were deaths, disrupting the economy, rolling quarantines even when the number of new coronavirus cases had begun to fall.
China’s Battle with Coronavirus
China has been making efforts to curb the spread of the coronavirus outbreak since December 2019. They tried to combat the virus in the same way as the U.S: By enforcing lockdown, asking people to practice social distance, and not to mention, shutting down the entire country.
Here is how the coronavirus outbreak and lockdown have devastated China’s economy:
- Over that time, the industrial production of China fell by 13.5% in January-February and its service production fell by 13%.
- Retail sales fell by a whopping 20.5% in real terms.
- And finally, China’s exports shrank by 17.2% due to work disruption.
How Can Coronavirus Impact the U.S. Economy?
The outbreak of coronavirus in countries like the U.S. could turn out to be even worse for their economies as compared to China.
That is probably due to the face-to-face service industries that play a vital role in dominating economies in high-income countries. These industries are more likely to collapse as people who are panicking start withdrawing from one another. When the entire country is shut down, people stop going to school, they can’t go to gym, restaurants, clubs, sports events, and can’t even travel, which simply means that the economic consequences could be worse than expected.
Disruptions to the global supply chains have been witnessed across the United States. And these kinds of disruptions are one of the most visible effects of the coronavirus outbreak. As noted earlier, China’s industrial production decreased due to some significant disruptions.
As a precautionary measure, China had to shut down factories in all the areas that were affected by the virus. Which resulted in causing supply chain disruptions and negatively impacting the employment prospects of workers from other countries.
Coronavirus Spreads to Other Countries
As the virus has moved to other countries as well after China, there is a good chance that these disruptions are more likely to spread further.
The U.S. government is already taking different steps to contain the virus. Different companies in the U.S have even encouraged work from home as a precautionary measure against the novel coronavirus outbreak. When a majority of workers across the U.S. will not be able to show up at work and prefer using Centurylink home internet, it is possible that it will reduce economic activity.
Let’s take the example of Northern Italy where a firm has been shut down that is considered to be one to the top suppliers of electronic parts to automakers across the European Union. This simply means that auto plants in different parts of the world may need to close. It would not be wrong to say that this kind of broadening of supply chain disruptions to contractors of in-between goods outside of China will make it quite challenging for the U.S. firms to substitute the missing products from different countries of the world.
How much this can have an impact on U.S. firms largely depends on what steps these firms take to manage their supply chains effectively. There are a variety of firms out there that manage the time between demanding new supplies from China and placing them into their own production for even a short period of time. These companies are more likely to experience the impact of factory shutdowns in China quite quickly.
Not only these challenges affect traditional industries like car manufacturing but also increasingly high-tech industries like smartphones and computers. As a result of these disruption to supply chains, U.S. firms are unable to complete their own production and thus unable to deliver their products to customers. What’s the result? Decreased economic activity and growth.
What Happens If the Coronavirus Persists?
Let’s suppose, health care systems and the government fail to contain the coronavirus together in the upcoming weeks and the coronavirus continues to spread and the economic disruption also continues ever after April. This could probably result in a full-fledged recession.
Reaching this scenario depends on different factors. We can control some of these facts, whereas the others we can only hope for things to go in our favor. What decisions policymakers and health officials make is very crucial in this time. Winning against the virus relies on the steps they take to curb the spread of the virus, like reducing the number of sick people in the United States and making the COVID-19 test widely available across the country.
In case the officials are unable to contain the virus well beyond April, the number of infected people is more likely to increase, and consumers and supply chains would not recover quickly. Even consumers would spend an extended period of lower spending.
For instance, there would be lower consumer and business confidence due to prolonged disruption. In addition to that, different firms and businesses that tried their best to hold on to employees in the hope of better times could end up downsizing their employees. When people would be laid off, households would not have enough money to spend.
It would hard to escape a full-fledged recession. What’s even worse is the fact that long-term interest rates are already close to zero, it is more likely to hinder the Federal Reserve’s ability to boost the US economy.
If that happens, then fiscal policy such as a payroll tax cut would turn out to be effective. All of this means that the U.S. economy would be quite weak and that recovery will take a lot of time.