Economic costs

If the pandemic is severe, the economic impact is likely to be significant, though predictions are subject to a high degree of uncertainty, according to the International Monetary Fund.The severity of a pandemic will depend on the illness and fatality rates, its duration, and the behavior and preparedness of households and firms, as well as the capacity and preparedness of health care systems.A pandemic similar to the 1918 Spanish flu could result in high levels of illness and death, and a sharp but only temporary decline in global economic activity.

Disruptions

Economic disruptions on the supply side would come directly from high absenteeism, as people may be asked to stay at home, or may choose to do so to care for sick relatives or because of fear of being exposed themselves.There may also be disruptions to transportation, trade, payment systems, and major utilities, exposing some financially vulnerable enterprises to the risk of bankruptcy.Moreover, demand could contract sharply, with consumer spending falling and investment being put on hold. Financial repercussions could further exacerbate the economic impact. Once the pandemic has run its course, economic activity should recover relatively quickly.Countries with weak fiscal and health systems are likely to be more exposed and more severely affected, as they lack the financial resources and the capacity to purchase and distribute drugs and vaccines, treat victims in a timely manner, and provide for health security measures.

Drop in tourism and exports

In the event of a severe pandemic, tourism could drop sharply due to fear of infection and possible travel restrictions, and may be slow to recover. Other exports could suffer from trade and transportation restrictions—imposed to control the spread of the virus—as well as from lower global demand and domestic supply disruptions.A severe pandemic could pose risks to the global financial system. Some temporary increase in risk aversion is highly likely, which would lead to a corresponding surge in demand for liquidity, specifically for cash, and for low-risk assets. The World Bank estimates that a severe pandemic could cost over 3 percent of the global economy's gross national product, between one and two trillion dollars in the worst-case scenario.Sources: IMF, World Bank

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