Lessons From Past Pandemics And Its Effects On Economy

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Since the beginning of mankind, Pandemics and Epidemics have had a profound economic and societal impact. But if there is one thing that stands out through all of this, it is that human resilience and adaptability is outstanding, knowing no bounds and various examples from history are a testament to that.

From the Black Death to the Spanish Flu and the recent SARS outbreak, the response and impact of entire economies hold valuable lessons.Though different in magnitude, past can give 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 - The Black Death -1348 -1350 - Casualty - 50 million 

The Black Death arrived in 12 ships in the port of Italy in 1347. Increasing modernization and stability in Europe led to extensive trade between East and West Europe itself. Cities like Venice and Geneva, located at trading docks became wealthy. The epidemic spread rapidly through Eurasia via these trade routes by parasites carried in 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,Black Death engulfed millions. 

It gravely impacted the economy by interrupted business, putting production on hold due to massive death toll. Majority portion of Black Death's outcome was felt in agricultural sector and the Demand side as well. Though wages increased, low prices of grain and other agricultural products disrupted the economy. Once the disease passed, there were ample labor shortage which cumulatively led to a dramatic drop in GDP of 29%. 

The theory behind how the black death came to end is through quarantines. By early 1500 s, England inflicted the first concept of quarantine - separate and isolating the sick. Homes hit by epidemic were marked, Black Death is estimated to have a severe macroeconomic impact across the world with countries France and Italy suffering gravely.

However, by the end of the disease, economic equality improved as a positive outcome of plague.

SMALL POX - 15th Century - Casualty - 300 million

It is believed to have first infected the humans during the time of agricultural settlements around 10,000 years ago. It is commonly believed that this virus came from camels or other domesticated pets to people. It expanded across Africa, Asia and Europe with a casualty rate of 3% of the world population. Although the economic repercussions of smallpox were grave, markets revived as the epidemic faded out.     

SPANISH FLU - 1918-1920 - Casualty -  20-50 Million

History repeated during Spanish Flu Pandemic of 1918, which infected 500 million people worldwide with casualty rate of almost 3 - 5% of the world population at that time. It is still a mystery precisely from where the distinct strain of influenza that caused the pandemic came from. It first appeared in Europe, USA and Asia before expanding quickly across globe within few months. World war I had stopped, troops returning home with infection. leading to a massive increase in the number of cases. It was hard to segregate the economic consequences as it arose during wartime. 

By 1920, the pandemic came to an end. The heavy casualty rate led to shutdown of many businesses, wiping out villages and shackling economies. Though the flu led to a rise in poverty rates, fall in capital returns and unemployment increase, the recovery was indeed quick. Within 1922, Sweden GDP increased by 8% and the nation saw a steady growth throughout the decade.

SARS - 2002-2004 

Severe Acute Respiratory Syndrome (SARS) an infectious disease surfaced in late 2002. It originated in China and spread across in Australia, Africa, Asia and Europe. It reached its peak in 2nd quarter of 2003. The significant economic effect as associated with GDP, Industry, Investment etc. Asian countries faced massive loss while countries like Canada had relatively less impact. Post 12 months, the broad market-benchmark was up.   

Whenever epidemic emerged, quarantine became norm of the society. Under the present situation, the outbreak is taking considerable toll on world economy compelling businesses to shut down and employees to resort to remote working. The past epidemics and economic downturns have taught us - markets rebound. Another teaching is when financial markets crash, there is no replacement to liquidity. Having liquidity will enable to pass through the market stress even f it lasts for months. 


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