Decoding Past Pandemics & Their Economic Impacts

  • KredX Editorial Team
  • 08 Apr 20
  • business,COVID19
Since the beginning of mankind, pandemics and epidemics have had a profound economic and societal impact. But if there's one thing that stands out through all of this, it is that human resilience and adaptability is outstanding, knowing no bounds and the various examples from history are a testament to that. By early 2020, when the news of a deadly coronavirus outbreak in the epicentre of the global supply chain - China, hit the international headlines, the world sprung into action and got ready to brace itself for the widespread impact though its magnitude was something not everyone had anticipated. Fast forward to April 2020; as the spread of coronavirus intensified, entire supply chains and industries were disrupted overnight, and global financial markets spiralled and performed in ways not seen since the 2008 economic meltdown. But amidst all this uncertainty, there lies a wealth of information buried deep in history that may provide us with the necessary clues to help navigate this current pandemic successfully. From the Black Death to the Spanish Flu and the more recent SARS outbreak, the impact and response of entire economies hold valuable lessons. Though different in magnitude, the past can provide some profound knowledge and guidance with indicators about the performance of the world economy and the resulting impact due to the coronavirus outbreak.

Past Epidemics & Its Impact On Global Economy & Trade

The Black Death (1348-1350)

Casualty: 50 Million 

By far, the worst death rate in history was inflicted by the Black Death. The Black Death arrived in 12 ships in the port of Italy in 1347.Historians say that increasing modernisation and stability in Europe led to extensive trade between the East and West Europe itself. Cities like Venice and Genoa that were located at trading docks became inevitably wealthy. The epidemic spread rapidly through Eurasia via these trade routes by parasites carried on the backs of rodents The sailors on board were either dead or severely ill. From its arrival in Italy to its spreading out like wildfire across the continent, the Black Death engulfed millions. 

Economic Impact

The wrath of the Black Death gravely impacted the economy. It interrupted business and put production on hold due to the massive death toll. Workers' fees arose, basic commodities became expensive, followed by famine. The widespread casualty and the extended period of the disease disintegrated the economic status quo.  The majority portion of the Black Death's outcome was felt in the agricultural sector and the demand side as well. Although labour wages increased, the low prices of grain and other agricultural products disrupted the economy. Once the disease had passed, there was ample labour supply shortage which cumulatively led to a dramatic drop in GDP of 29%.

How Did The World Cope

A prevailing theory behind how the black death came to an end is through quarantines. By the early 1500s, England inflicted the first concept of quarantine - separate and isolating the sick. Homes hit by the epidemic were marked. The Black Death is estimated to have a severe macroeconomic impact across the world; with countries like France and Italy suffering gravely. However, historians noted, by the end of the disease, economic equality improved as a positive outcome of the plague.

Spanish Flu (1918 - 1920)

Casualty: 20-50 Million

History was repeated during the Spanish flu pandemic of 1918, which infected 500 million people worldwide, with the casualty rate ranging between 20 and 50 million - almost 3-5% of the world's population at that time. It was touted as Spanish Flu as the country was one of the most severely hit by the disease. It's still a mystery precisely from where the distinct strain of influenza that caused the pandemic came from. The 1918 flu first appeared in Europe, the U.S., and Asia before quickly expanding across the globe within a matter of months. The pandemic crossed borders due to particular circumstances during which it emerged. The WW-I had stopped, and troops were being disbursed, returning home with the infection, leading to a massive uprising in the number of cases. During this time, the world was busy planning for peace and renegotiating treaties.

Economic Impact

It is hard to segregate the economic consequences of the flu as it arose during wartime. A study has ascertained that manufacturing wages increased in the U.S. cities, especially the ones that had a higher casualty rate like Pennsylvania, Maryland and New Jersey. Whereas, in the U.K., data reveals that the charges of labours went up by 34.2% between 1918-1919, whereas real GDP in the country fell by 6%. Sweden, a country that wasn't involved in WW-I, the pandemic impacted earnings from stocks. However, the price of gold increased by 6.1% during the same period.

How Did The World Cope

By 1920, the pandemic came to an end. The disease took a massive toll on the society, wiping out villages and shackling economies. The heavy casualty rate led to the shutdown of many businesses and disruption of essential services. Although the flu led to a rise in poverty rates, fall in capital returns, and increased unemployment, the recovery was indeed quick. Within 1922, the Swedish GDP alone increased by 8% and the nation experienced steady economic growth throughout the decade.

Smallpox (15th Century)

Casualty: 300 Million

Smallpox is believed to have first infected humans around the time of the earliest agricultural settlements some 12,000 years ago. A common theory suggests that the virus came from camels or other domesticated pets to people. It expanded across Africa, Europe, and Asia and with a casualty rate of 3% of the world population. 

Economic Impact

Beyond immediate program expenses, smallpox incited much higher incidental expenses in the form of global economic performance. Research suggests that smallpox accounted for low-to-middle income nations more than $1 billion per year; however, developed countries bore much lesser expense. Overall, the Center for Global Development predicted that direct and indirect expenses of the disease cost the world approximately $1.35 billion in the late 1960s.

How Did The World Cope

Smallpox which existed for years was one of the most dreaded diseases until it was exterminated by a collaborative global prevention program supervised by the World Health Organization. Although the economic repercussions of smallpox were grave, the markets eventually revived as the epidemic faded out.

SARS (2002-2004)

Casualty: 774

Severe Acute Respiratory Syndrome (SARS), an infectious disease surfaced in late 2002. Having originated in China, the virus rapidly spread across the border, impacting Australia, Brazil, Canada, China, Hong Kong, South Africa, Spain and the U.S.  The disease reached its peak amidst the 2nd quarter of 2003, infecting about 10,000 with a casualty rate of 10%. The SARS outbreak was also probably the first occurrence of collective global interest for the economic impact that might occur. 

Economic Impact

The most significant economic repercussions of SARS was associated with the overall GDP and investment, and industries like hotels and tourism. As per the National Bureau of Statistics of China, the disease pulled down China's growth rate from 11.1% year over year in the first quarter of 2003 to 9.1% in the ensuing three months. Asian countries like Hong Kong incurred massive loss, however countries like Canada had relatively less impact. 

How Did The World Cope

Time and again, whenever an epidemic emerged, quarantine became the go-to norm of society. It was concluded that Asian countries suffered a loss of $12–18 billion as the crisis reduced travel, tourism, and consumption. As per the Dow Jones Market Data, the S&P 500 recorded a gain of 14.59% after the emergence of SARS back in 2002-03. Consecutively, post 12 months, the broad-market benchmark was up 20.76%

The Economic Impact Of Epidemics

Mankind has always come face-to-face with unprecedented challenges and survived through pandemics and epidemics like Ebola, Zika, H1N1, and more. History reveals that the economic impact of such diseases has imperilled societal demographic. However, the impact of pandemics and epidemics are not distributed equally all through the economy. A few segments may even profit monetarily, while others will endure loss excessively. Pharmaceutical organisations, for instance that produce antibodies, anti-infection agents, or different items required for outbreak response are potential takers. The manufacturing industry, subsequently supply chain, and trade endures overwhelming expenses.

The Current Situation

The outbreak and rapid spread of coronavirus impacted world markets, with ripples felt across the globe. The panic selling of investors and the resultant indices experiencing a bear market in full throttle is the validation of the fact that the global recession clock has been set in motion. The speculation of an unforeseen global meltdown turned real when the International Monetary Fund announced that the pandemic outbreak as "humanity's darkest hour," which has put the global recession clock ticking with repercussions way worse than the 2008 financial crisis. At present, with nations under lockdown, disrupted supply chains, decreased import and export rate, it is safe to assume that COVID-19 will have a profound impact on the global economy for at least a few quarters - a looming risk to FY21 earnings. The unparalleled similarity between the market reactions during past epidemics proves that markets fall on concerns of a coronavirus-related economic slump is a knee-jerk reaction to the health crisis. However, it is to be noted that an epidemic crisis is complex in nature, but policymakers have tools and mechanisms they can use in response. 

The Bottomline

The probable financial disadvantages of communicable infection outbreaks are cumbersome. Additionally, the advent of globalisation has prompted enormous growth in both developed and emerging nations. It also spurred worker mobility, and a greater capital flow generated increasingly interdependent markets and countries. While this model has been the key to growth and development, it also enhanced the risks posed by infectious virus outbreaks, with ripples radiating across the globe. The crisis we encounter with COVID-19 is that after the pandemic is no longer in the headlines, epidemic readiness may get on the hindsight of monetary plans and agendas. But new outbreaks are sure to happen, and without continued deference and funding, they are expected to provoke panic again.  Given the current situation, the outbreak is taking a considerable toll on the world economy, compelling businesses to shut down and employees to resort to remote working. In essence, the economy is undergoing a bear market. However, the past epidemics and economic downturns have taught us one thing - markets rebound. Hence, at a crucial juncture like this, it is prudent to not panic. However, another thing that history has taught us is when financial markets crash there's no replacement for liquidity. Having liquidity will enable you to ride out the market stress even if it lasts for months. Stay tuned for Chapter 2 next week. Until then, stay safe! Regards Team KredX