We are still sailing in uncharted waters. The COVID-19 pandemic has turned the world upside down and inside out. It took only weeks for the global economy to reach a standstill, and we still haven’t gotten to the other side. As a result, millions of people lost their jobs. Businesses have permanently closed their doors. And the stock market has plummeted.
But this is only the beginning. The actual test of the economy will come in the months and years ahead as we grapple with the fallout from this pandemic. But, again, this is an unprecedented situation, and no historical precedent can guide us. So, what can we expect? How will this pandemic affect the economy in the long term?
Two problems at once
The first thing to understand is that this pandemic is unlike anything we’ve ever seen. It’s not just the health crisis that makes it unique; it’s also the economic crisis. So we’re dealing with two problems at once—a public health crisis and a financial crisis—and they inevitably interact with each other.
The economic shutdown is already having a profound impact on businesses and workers around the world. We lost jobs, our incomes have shrunk, and consumer spending is, understandably, plunging. These factors, alongside the cost of living crisis, put enormous pressure on companies and small businesses struggling to keep their doors open. And it’s only going to get worse in the months ahead as we deal with the ongoing effects of the pandemic.
Reason for optimism
In the long term, however, there is a reason for optimism. The actual economy—the underlying productive capacity of our society—is still there. This pandemic hasn’t destroyed it; it only temporarily suppressed it. Once we get past this immediate crisis, there is potential for a strong recovery as businesses reopen and people return to work.
The COVID-19 pandemic has brought the world economy to a standstill that we have never seen before. But while this crisis is unprecedented, it doesn’t mean we face an entirely unknown future. We can look to past problems—such as 9/11 or the 2008 financial crisis—for guidance on how this pandemic might affect the economy in the months and years ahead. In particular, we can focus on three key factors: job losses, business closures, and consumer spending. By understanding how these factors have affected economies in the past, we can gain insight into what might happen in the months and years ahead.