COVID-19's Financial Impact - 5 of 5

How is the pandemic impacting the U.S. economy?

Severely and still to be determined. In March of 2020, for perhaps the first time in history, the United States experienced a near-full economic stop. An economic stop is the sudden and significant slowdown of the flow of private sector capital into the economy (buying, spending, etc.). As the United States constitutes a staggering one-fourth of the global economy, it’s safe to say that the world will not fully recover economically (from the pandemic) until the United States does. Current projections are that our economy is likely headed for a period of retraction, but even that is not certain as several things, including treatments, vaccines and cures, could result in the economy firing up nearly as fast as it screeched to a halt only a few weeks ago.

While it’s important to remember that the U.S. stock market is not the economy, it is often referred to as a “leading economic indicator.” That means it has historically fallen ahead of economic downturns and has historically risen in advance of broader economic upswings. Unsurprisingly, initial investor response to the impact of the corona virus pandemic resulted in the Dow Jones Industrial Average falling around 30%, with the March 16th decline of 2,997 points surpassing the previous one-day record decline (set only a few days earlier) by about 645 points. Interestingly, the current market has proven to be somewhat more resilient (than might have been predicted in early March), as investors respond to various announcements such as the CARES Act stimulus bill (signed into law on March 27th), and the influx of positive (and negative) news pertaining to treatments or a possible flattening of the corona virus infection curve.

What is the impact of COVID-19 on the global economy?

Both substantial and still to be determined. While the precise long-term impact is uncertain (and will likely continue to evolve for many years), the short-term negative economic effect of the COVID-19 novel corona virus on the global economy would be nearly impossible to overstate. Only a few weeks into the pandemic, economists have already lowered their assumptions for 2020’s global GDP from 3.0% to 2.4%. Even if the final drop is indeed “merely” that reassessed 0.6%, that’s still a 20% drop that equates to several trillion dollars in lost output. The fact is, it would not be at all surprising for that number to be revised substantially downward in the coming weeks and months.1

Nearly all sectors of the world’s economy have been deeply affected, with hotels, airlines, restaurants and retail stores faring the worst. That’s because much of the damage wrought by the virus has to do with its impact on the public’s demand for goods and services. With perhaps half the world’s population under orders to “shelter in place” (or in full quarantine), billions of people are staying home instead of spending money. Just one example of the impact of the virus on the global economy would be its devastation of international business travel (airlines, hotels and restaurants), which alone is expected to decline more than $800 billion compared to 2019.