Business closure due to COVID-19 could cost US $ 1 trillion in GDP
According to a USC study, the COVID-19 pandemic could start with a net loss of $ 3.2 trillion and reach $ 4.8 trillion in real gross domestic product in the United States in two years.
The economic impact of a pandemic depends on factors such as the duration and extent of business closures, the gradual resumption process, infection rates and deaths, avoidance of public places, and stagnant consumer demand. USC Center for Terrorist Attack Risk and Economic Analysis (Created).
Real GDP is an inflation-adjusted indicator that reflects the value and quantity of final goods and services produced by the country’s economy in a particular year.
“In the best scenario, containment measures such as masks and social distance will be more widespread and even vaccines will be widespread by next year, so businesses and institutions will be able to resume at an accelerated pace.” Stated. Adam rose, Research Team Leader, CREATE Director, and Research Professor USC Price School of Public Policy..
“But in the worst-case scenario, these measures don’t happen and the resumption is slow, especially because of the continuing wave of infection,” he added. “Then more people are likely to lose their jobs and the impact of this disaster will continue to grow.”
Researchers have found that forced closures and partial reopenings could reduce US GDP by 22% in just one year and even greater GDP loss in two years. Other important factors influence how disastrous the loss can be, they said.
The research team added that China has not suffered such losses due to aggressive containment measures and the containment period has been shortened. They predict that in the worst-case scenario, the US GDP loss from COVID-19 will be more than four times that of China.
The study was published in the journal Economics of disasters and climate change..
USC researchers predict GDP loss, labor force decline in response to COVID-19
In early March, several states ordered the closure of non-essential businesses such as restaurants, bars, salons and retail stores in response to the increase in COVID-19 cases. Many have also stopped or reduced public services to limit their spread.
CREATE researchers, who are experts in modeling the economic impact of disasters, have analyzed the potential economic impact in three scenarios ranging from moderate to disastrous.
Using a computerized economic model, researchers explained these other factors in three scenarios. They reduce the workforce due to workers getting sick and dying from the virus, staying home to avoid infection, increasing demand for COVID healthcare, potential resilience through telework, and communications services. Changed the decline in the workforce by adopting new actions such as increased demand for, and increased pent-increasing consumer demand.
Researchers have integrated the literature into predictions about the possible duration of a pandemic. In the March 2020-February 2022 scenario, editing the findings could result in more than 300,000 COVID-related deaths in the United States and, in the worst case, 1.75 million. Was shown.
As many as 365,000 to 2.5 million COVID patients can be admitted to the ICU, and an additional 860,000 to nearly 6 million patients can be admitted to the ICU, but they are not treated in the ICU. The number of outpatients expected to be treated for COVID varies from approximately 2.6 million to 18 million.
Among the other highlights of the study, the researchers predicted:
- For people infected with COVID-19, 54 to 376 million working days will be lost.
- Nearly 2 to 15 million working days will be lost as employees stay home to care for their sick loved ones.
- Unemployment ranges from 14.7% to 23.8%, affecting an estimated 36.5 million workers in the worst-case scenario.
- The demand for health care is increasing due to COVID infection. From March 2020 to February 2022, COVID-19 medical costs could range from $ 32 billion to $ 216 billion.
- Loss of demand for some services, such as attending public transport and schools, eating and traveling in restaurants, as people avoid public places and services to reduce the risk of exposure.
- During this pandemic, many employees had to work from home, increasing the demand for communications services.
- Demand is expected to increase as consumers cannot spend money on high-value items such as cars, travel, restaurants, hotels, merchandise, fitness, sporting events and concerts during the holidays. Range during gradual resumption.
Avoidance behavior contributes to the economic impact of COVID
Researchers have found that forced closures and reopenings are the most influential factors in economic decline, but consumer avoidance behavior also has important implications.
In this study, researchers hypothesized that various people avoided work, did not attend direct classes at school, and stopped going to restaurants, activities, and social gatherings to reduce the risk of infection. ..
The important question is when will it be fully reopened throughout the country.
“This had a significant impact on economic losses, as people had to avoid activity,” he said. Danway, USC Price CREATE Research Fellow and Research Associate Professor. “Based on our model, we estimate that evasive behavior can cost US GDP about $ 900 billion in the worst-case scenarios. Consumers in places like California are in restaurants. They are saving their money because they can’t engage in many activities like eating inside. “
The economic losses from closure and avoidance behavior could be partially offset by increased personal consumption after resumption, the researchers said.
“Pent-up demand is one of the most influential factors for the economy in this pandemic. Forced closures and partial resumptions are driving most of the recession, while stagnant demand is the resumption of consumption. The extent to which it leads to an increase can be crucial to the economic recovery. ” Terry Walmsley, CREATE Research Fellow and Part-time Associate Professor of Economics at USC Dornsife College of Letters, Arts and Sciences.
“The important question is when will it be fully reopened throughout the country,” Rose said. “It is unpredictable, especially given the fact that we have no control over the spread of the disease.”
This work was supported by the US Department of Homeland Security’s Operational Efficiency Research Contract.
USC CREATE, which is affiliated with the USC Price School for Public Policy and the USC Viterbi School of Engineering, was the first of several research centers in various disciplines to help the US Department of Homeland Security establish it in the wake of a terrorist attack. September 11, 2001.