The Economic Impact of the Coronavirus (COVID-19)

 

Bottom Line Up Front

  • President Trump signed a $2 trillion stimulus package into law last week, designed to provide relief for an American economy that many experts suggest is heading for a recession—some even predict a depression.
  • Overall, the bill has been credited for being more transparent than previous economic stimulus packages, including the 2008 stimulus.
  • An ongoing struggle for the Trump administration is when, and how aggressively, to push to reopen the economy, even as coronavirus cases continue to rise across the country.
  • Even after the world eventually reaches its infection peak and the virus begins to ebb, the economic and health challenges will have a lag effect, meaning the implications of COVID-19 will last for years to come.

President Trump signed a $2 trillion stimulus package into law last week, designed to provide relief for an American economy that has been devastated by the coronavirus (COVID-19). Many experts suggest the U.S. economy is heading for a recession—some even predict a depression. The bill is the largest relief package in U.S. history passed by a unanimous 96-0 vote in the Senate, also enjoying strong support in the House. The bill has several parts: direct payments to individual Americans (over 150 million households), unemployment assistance, loans and grants to struggling businesses, and money for overburdened hospitals and health care providers. There will also be some help for states. The Federal Reserve is exploring potential methods of assisting state and local governments, which are bearing the brunt of the fight against the coronavirus, including New York, the new epicenter of the COVID-19 crisis. State revenues are being drastically attenuated, which will necessitate a dire need to borrow large sums of money. As reported by the Wall Street Journal, the Fed’s balance sheet rose to $5.25 trillion, up from $942 billion. When interest is factored in, the real cost of the stimulus package will rise beyond $2 trillion over time. Last fiscal year, the U.S. Federal government paid $580 billion in interest, or 1.7% of gross domestic product (GDP).

But some have said the bill does not go far enough, and fails to include critical provisions for full debt relief of student loans (not just a delay of payments) or the direct reimbursement of lost wages to individuals who were laid off. U.S. unemployment claims reached 3 million last week, with more expected in the coming weeks and months. Individual states will all be impacted differently and already, New York State Governor Andrew Cuomo has commented that the bill falls far short of what his state needs to survive. The bill also includes billions of dollars earmarked for companies including Boeing, under a provision of the bill reserved for companies deemed critical to national security. In total, the bill includes approximately $500 billion in loans and other assistance for big corporations, with $58 billion specifically appropriated to help the airline industry. Overall, the bill has been credited for being more transparent than previous economic stimulus packages, including the stimulus package passed during the 2008 financial crisis. A stock buyback ban, a special oversight committee, and stringent reporting requirements are all critical features of the Coronavirus Aid, Relief, and Economic Security Act, or CARES Act.

An ongoing struggle for the Trump administration is when, and how aggressively, to push to reopen the economy, even as coronavirus cases continue to rise across the country. Sending Americans back to work too soon could result in the worst case scenario—a crippled economy and more people sick and dying because economics superseded public health. A second wave would lead to far more deaths and could also result in another labor force shutdown. The uncertainty over how events will unfold in the coming weeks has left global markets skittish and kept investors on edge. One of the most concerning issues moving forward remains the budget deficit, which is expected to surge. Even before the bill was passed, total federal debt was already extremely high, approximately $23.5 trillion (roughly $6 trillion of this total is owed to other government agencies, including Social Security). Resulting from tax cuts and U.S. government spending on the military and other programs, the deficit was approximately 4.7% of GDP in 2019.

The economic fallout from the coronavirus pandemic is global, and its impact is already being felt, from Sao Paulo to Singapore. Quarantines, travel bans, and closures of schools, businesses, and entertainment venues have brought the global economy to a near standstill. The economic effects of this pandemic will continue to ripple for the foreseeable future. The International Monetary Fund (IMF) recently warned of the risk to lesser-developed and low income countries, especially those that lack the healthcare infrastructure to properly deal with an influx of sick and dying patients. As capital is withdrawn from emerging markets, countries from Latin America to Africa are at risk of debt defaults. Meanwhile, China’s economy, currently the second largest in the world, is expected to contract significantly, further contributing to a global economic recession. To date, the virus has infected over 730,000 people from at least 171 countries with nearly 35,000 killed. Even after the world reaches its peak of infections and the virus begins to ebb, the economic and health challenges will have a lag effect, meaning the implications of COVID-19 will last for years to come.

Categorized as:North AmericaTagged with:

Related Articles

Search

Close