How much will the coronavirus pandemic impact the economy? Warwick McKibbin, professor and director at the ANU Centre for Applied Macroeconomic Analysis says it’s in the trillions.

“We estimate this outbreak is going to cost tens of trillions to the world economy. And it's actually not over even once this pandemic is through."

Warwick explains, "Number 1 is international trade has collapsed. And the movement of goods around the world has collapsed. The movement of people has collapsed. A there's a lot of human capital that's generated and then distributed around the world with people moving across different countries for different types of jobs. That's a big problem. For example, in India internally, we have a lot of people that were working in the cities that lost their jobs. So they've had to migrate back to the countryside and take the disease with them. So this mobility of people and goods is the biggest impact.”

The second biggest impact according to Warwick is on confidence.

“People argue you shouldn't have shutdowns because if you had no shutdowns be no economic loss. Well, that's just not true. Overwhelmingly, the change in economic outcomes is caused by individuals changing their behavior, not because the government mandated the shutdown. So the shutdowns are there because there are a number of individuals that won't respond appropriately. The loss of confidence is having impacts everywhere except in stock markets, which in itself is an interesting problem.”

The way we do things moving forward could also be permanently affected.

“There's an attitudinal long-term effect, and the way in which we do things could be affected permanently. There's going to be a lot of industries that are going to be restructuring. There will be some industries that may cease to exist, especially if we never get an effective vaccine. And so humans adapt very quickly. And I think you'll find a big change in the desire to live in cities versus small coastal communities.”

Warwick explains, “To make the choice between do nothing and save the economy is a false, false choice. I think you have to go for the epidemiological minimization response. But you don't just shut everything down. That's just this is too expensive at this point. Given the information we currently have, we have to manage this.”

Warwick says the world has slumped between 10 and 20 percent.

“This is the biggest shock since certainly bigger than the Great Depression for some countries.”

He adds, “The global coordination has to be front and center at this point because there are some countries that are going to go through deep economic crises as a result of coming out of the other end of Covid.”


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