COVID- 19, novelly known as coronavirus, has been rapidly spreading all over the world. The vulnerable infected people mainly include old age, suffering from medical conditions (such as diabetes, blood pressure). As of today, there are no valid proofs that it is only affecting old age. But the percentage of deceased in old age is quite high. Its effect is being felt so far is beyond 140,000 Americans who are confirmed with this infection. And to control the spread of COVID 19 necessary actions are taken such as the quarantines and lockdowns. Which is freezing the economy, with unprecedented force and speed.
The stock market has sunk to its lowest in a decade. Meanwhile, last week, it’s recorded that millions of Americans applied for unemployment benefits, which is a record in the history of the USA. Financial experts predict that America can face a recession period.
What do you mean by a recession?
According to NBER (National Bureau of Economic Research), recession can be defined as “a significant decline in the economic activity spread across the economy”, and most lasting for more than a few months. Normally shows the effect on real GDP (Gross Domestic Product), real income, employment, industries production, and wholesale-retail sales.
Effect of COVID-19 in economy
To understand the effect of COVID-19’s hit on the U.S economy, first, consider its effect on different industries. The agriculture contribution is around 0.9% to the GDP, consumption makes up to 70% of America’s GDP. Whereas, arts, entertainment, restaurants, and recreations make 4.2% of GDP, and investments make up to 20% of GDP. But because of COVID-19, consumptions are slumped to records low as businesses close. And they are putting off investment as they are waiting for clarity on the full cost of COVID-19. Closing of restaurants and movie theatres represent the downfall of GDP until the quarantines and lockdowns are lifted.
Manufacturing Sector also affects the GDP as most of the factories are facing temporary closure. Small businesses may struggle to maintain staff as there might be revenue slumps. The U.S. has passed a massive bill for expanding unemployment insurance and providing cash for low and middle-income waged Americans, which will help them to meet their needs until the economy begins to recover.
Coronavirus could threaten the US economy when compared to China’s
After the death of so many, there is a heart-stopping plunge in the stock market. And an emergency cut by the Federal Reserve might be the reason for concern about the ultimate economic impact on the United States caused by the coronavirus.
The news of strings of deaths, rolling of quarantines helping the economy to flatline, though the rate of new cases has begun to fall. But an advanced economic country like the U.S. could face a worse situation on a broad outbreak of the disease in them than in China. This is because of the kind of businesses that directly impact the country’s economic conditions. If people stay home, stop traveling, stop going to sporting events, gyms, schools, restaurants, and many other places, the economic consequences would worsen.
As the U.S. workers lack health care coverage and lack paid sick days, so people will not choose to stay at home to meet their daily wages. The way to stop spreading the virus is a quarantine that the normal workers can’t afford.
The virus spreads in the community during interactions, consider travel – the average American takes three flights per year, but the Chinese take half a flight on average.
Consider sports events – sports is a huge business in the U.S. as they play many tournaments. And people spend more than 10 times at sporting events as they do in China. In the same way if people in the U.S. stop going to gyms, billions of loss can be faced for the gym members, when compared to China it’s 10 times more.
How far will it(the U.S.) take for economic recovery?
That depends on when the spreading of the virus will slow down and the business can operate in normal conditions. The president suggested the recovery will begin by the mid of April. Which looks unlikely. Considering the effectiveness of the virus in a country like Italy, places with full lockdown such as New York faced a string of deaths. Italy took a month to control the death rate.
If businesses and restaurants in the U.S. open immediately, then there is a chance of spreading the virus again. And in some parts of the United States, there is not yet a lockdown to slow the infection rate. The higher the cost of the crisis due to closure in business the higher the time required for recovery.
