Nicole Adamson | How COVID-19 differs economically from previous pandemics

The first case of pneumonia of unknown cause in Wuhan, China, was reported to the World Health Organization (WHO) on December 31, 2019. This would become the first known case of the disease we now call COVID-19, declared a global pandemic by the WHO on March 11, 2020.

The economic, cultural and societal impact of the pandemic will be far-reaching and will bear directly on businesses in Jamaica. Let us show how the COVID-19 pandemic distinguishes itself from previous health crises, especially as it relates to the economy.

The spread of the virus has caused governments around the world to respond by shutting their countries’ borders and imposing travel restrictions. Many have recommended businesses enforce work-from-home practices, while ordering others to close altogether, and exercising emergency powers that curb individual rights and freedoms with a view to enforcing social distancing. The effect is that whereas SARS, MERS, H1N1 and Ebola presented challenges in relatively localised economies in the world, no previous health crisis has debilitated world trade as much as COVID-19 has, maiming crucial supply chains and infecting the global economy in the process.

The fact that the virus emerged in China during the popular Chinese New Year cannot be ignored. Reputed to involve the world’s largest annual migration, where several billion trips are made over the period immediately before and after the Chinese New Year (celebrated on January 25 this year), the occasion could have contributed significantly to the transmission of the virus worldwide before countries started to restrict travel from China in late January.

ECONOMY BEFORE COVID

The struggling state of the global economy just prior to the appearance of COVID-19 made conditions ripe for an economic disaster when the disease emerged. Uncertainties surrounding the United Kingdom’s withdrawal from the European Union, ongoing trade disputes between major players, including the US and China, together with falling oil prices, negatively weighed on the world economy in 2019, with the International Monetary Fund (IMF) economists putting world gross domestic product growth at an anaemic 2.9 per cent for the year. This rate represents the lowest level of growth since the 2007-08 financial crisis.

The dismal global economic atmosphere prevailing prior to COVID-19 meant that the salvo of monetary and fiscal policy tools employed by central banks had already been activated to a large extent.

The impact of the crisis on the world’s financial markets has been swift, with both the S&P 500 index and the Dow Jones Industrial Average losing one-third of their value between mid-February and mid-March 2020. Back home, the JSE Combined Index declined by 25 per cent as compared to its value at the start of the year. These developments reflected the nervousness of perennially moody investors, who responded to news of the crisis by transitioning away from equities and into safer treasury securities, and in particular sovereign bonds.

IMF PREDICTIONS

Noting that the current global crisis is multi-layered, “comprising a health shock, domestic economic disruptions, plummeting external demand, capital flow reversals, and a collapse in commodity prices,” the IMF in its World Economic Outlook April 2020 report projects the world economy to contract by three per cent in 2020. The Jamaican economy is similarly expected to contract, according to the IMF, by 5.6 per cent. With some 20 per cent of the Jamaican economy traditionally beholden to the tourism and hospitality industry, it comes as no surprise. The projection does not augur well for the labour force. Some 3.84 million Americans filed for unemployment benefits for the week ending April 25, bringing total unemployment claims to over 40 million since March 21. These data provide evidence that the US is undergoing its worst unemployment crisis since the Great Depression of the 1920s-30s. Experts are also estimating that approximately 60 million people in Europe will lose their jobs.

JAMAICA’S UNEMPLOYMENT RATE

With some 20 per cent of the Jamaican economy traditionally beholden to the tourism and hospitality industry, and visitors from the US and Europe forming the bedrock of that industry, it comes as no surprise that a significant number of jobs will also be lost locally. Projections indicate that the number of unemployed persons will rise significantly to just above 150,000. This would roughly send the country’s unemployment rate back into the double digits to at least 10.7 per cent, a level last seen in 2017.

By now, it is clear that the far-reaching impact of the pandemic is expected to dampen any possibility of growth that Jamaica could have realised in 2020.

Nicole Adamson is research manager at Victoria Mutual Wealth Management Limited.