The economist sees sharp, short-term effects.


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Gabriel Erlich is director of a quantitative economics research seminar at the University of Michigan, where he forecasts the economies of the United States and Michigan. He discusses the economic impact of coronavirus locally, nationally and globally.


We are witnessing a Dow crash, educational disruption, limited trips, canceled events, and more. How does all this affect the forecast you made?

This is a rapidly evolving situation. We are closely monitoring this, and the reality is that we are not epidemiologists. As economists, we have to make some assumptions about different ways disease can take its course. In fact, we don’t have a forecast of what the disease will do, but we did some modeling of what an unfavorable scenario for the disease can do. economy,

The first thing I want to pay attention to is that before the epidemic really erupted in the United States, we believe that the fundamentals of the US economy were in pretty good shape. We believe that the fundamental foundations of the US economy remain strong. The scenario that we simulated was aimed at approximately flu epidemic The United States saw some lighter pandemics in 1918-19, which broke out both in 1957 and in 1968. These were three of the most serious outbreaks of disease that we have seen over the past 100 years, and we strove to be between them. We modeled the severity levels in the scenario.

We have seen many movements in the asset market, the Dow is falling. It should be borne in mind that the stock market is not an economy. Don't get me wrong: this is definitely bad news about how far the Dow falls and what we see in asset markets. But asset markets are more volatile than the underlying economy.

Where do you predict we will see the greatest economic impact?

We expect the epidemic to cause the greatest disruption in sectors requiring social interaction. We just saw an announcement from the NBA that he is postponing the season indefinitely. Again, this is due to the fact that the basketball game has a lot of direct contact, and tens of thousands of fans gathered in the arena, and this is really an incubator for the spread of the disease.

We also expect to see a breakdown in tourism sector, accommodation and food services and retail, although not as large as in travel and accommodation and food. We really think that we can see some malfunctions and interruptions in production activities, but we expect them to be random or isolated – we do not expect systematic shutdowns, for example, among automakers of the Big Three.

Another sector that faces challenges is schools. Many public universities in Michigan and elsewhere have switched to online classes until the end of the semester. Most educational workers are likely to receive their salaries, even if there is a closure, but this can cause difficulties for parents in organizing childcare.

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Courtesy: University of Michigan.

In some of these sectors, lower-income people work. Is this a concern for economists?

It is true that the devastation we are witnessing as a result of the epidemic could hit sectors of the economy in which low-income workers are disproportionately employed. Those same workers, most likely, do not have paid leave, paid sick leave or leave. So it is absolutely dangerous that the disease can from an economic point of view affect people who are more vulnerable than disproportionate on average.

If you think of me, I am an economist at the University of Michigan. I can do most of my work at home if I need to, and if I can’t, I still expect to get my salary. This does not apply to some people who work, for example, in the fast food industry or in the accommodation industry, where the situation can be more complicated.

What surprised you about the effects of the disease?

I think what surprised us most was how fast the stock market and representatives of the authorities react to what you do not yet see in reliable economic data. In the past, you really needed to see slowdowns or data failures before you saw a reaction, for example, from the Federal Reserve. Whereas with this epidemic, we see government officials, enterprises, and other actors in the economy going beyond the curve. This is partly because we have already seen that the destruction is so serious in other countries that first suffered from this disease.

How is the 21st century economy more resilient or more vulnerable than in the past, for example during the previous pandemics you referred to?

Thinking about vulnerabilities, today we have a much more globally interconnected economy than 100 years ago. So if you think about things like international flights, this is a way of spreading the disease. In addition, the service sector is a larger part of the US economy than it was 50-100 years ago, when the production and production of goods were more important. It is in the service sector that we really think that the biggest drops in demand will be felt.

I think that today the economy is much more stable in two sectors: firstly, in the field of professional and business services. Today, the reality is that you can do a lot of work remotely. Most of these jobs are professional jobs, where if you have a laptop and an Internet connection, you can access your files, you can do most of your work. Secondly, production supply chain today it is more flexible and flexible than 100 years ago. Modern manufacturers are extremely adept at managing their supply chains, and they have done incredible things in the past when their supply chains were at risk of failure.

What else is important to know about the overall economic impact?

Right now, in our basic modeling, we do not see the epidemic causing an official recession, of which we usually think that it includes two quarters of the falling gross domestic product. We expect a decrease in economic activity, but the consequences will depend on the course of the epidemic. We expect the consequences to be short-lived enough so that we do not meet the official definition that the economy will enter a recession, although this may ultimately pose a serious challenge. In particular, we expect growth to begin to recover in the third quarter of the year. We expect a sharp but short-term decline in economic activity if the disease develops as aggressively as some of the scenarios that we observe.


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citation:
Coronavirus: economist sees sharp, short-term effects (2020, March 13)
retrieved March 13, 2020
from https://phys.org/news/2020-03-coronavirus-economist-sharp-short-lived-effects.html

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