This blog is part of a series relating to the economic impacts of the CoVID-19, novel coronavirus outbreak of 2020.
CoVID-19, or Coronavirus as it is more commonly known, is at the centre of an ongoing global health crisis. CoVID-19 is actually a novel strain from the same family of viruses that includes MERS and SARS. One leading expert on epidemic preparedness called the virus “the most frightening disease I’ve ever encountered in my career” due to a combination of high infectiousness and high lethality. However, many impacts of the virus will not directly relate to its health implications. In order to generate a comprehensive picture of CoVID-19’s true social impact you need to consider the medical and other non-medical factors across the full range of industries likely to be affected. Estimates of the direct and indirect economic impacts of CoVID-19 can be made by building a model to simulate different scenarios using data from past events such as the SARS outbreak of 2003. However, signs point to this outbreak as having the potential for a much greater global impact than SARS, which had a relatively focused impact primarily in the China region. This higher anticipated impact is in part because of the increasingly integrated global economy and the even more prominent role of China in the supply chains and labor force of so many industries and economies. There are negative spillovers and flow-ons from an event like this that have the capacity to extend well beyond just the immediate and obvious cost to health and ordinary way of life for those infected. Global agencies such as the World Health Organisation (WHO) and the Organisation for Economic Co-operation and Development (OECD) are providing advice and statistics about the developing situation but the reality is that the impacts will take a long time to become clear. In a recent presentation, Laurence Boone the OECD Chief Economist put forward a number of estimations based on different scenarios of disease containment and spread. These include a ‘contained outbreak’ scenario involving a .5% drop in global GDP, or approximately $400 billion and a ‘downside scenario’ estimating more like a 1.5% drop in global GDP; neither of these estimates represent a worst-case scenario. The impacts on Australia’s economy have the potential to be significant due to the important role of China in our economy, factors such as a drop in students and tourists can have enormous impacts as these contribute ~1% to Australia’s GDP.
As a learning experience, students at Western Sydney University in the Economics and Finance Engagement unit, a final year capstone unit, have been asked to use real-time information to analyse the likely economic impacts of CoVID-19 on the Australian economy. Each group of students is tasked with choosing a particular sector and setting to analyse, using the most accurate data possible to model different scenarios of contamination, spread and level of impact across different time periods. We will share the results of this analysis here each week. A key question for the students in their project is how long and wide will the spread be, both of the virus and the containment measures? Not only do they need to consider the substantial cost of caring for the ill, but also the impacts of the behaviours healthy people take to avoid becoming sick, such as staying off work and avoiding other ordinary activities.