Poor health outcomes in the U.S. point to a slow economic recovery, and possibly a double-dip recession.
People wearing face masks to protect against the coronavirus gather at a pedestran shopping street in Beijing in June 2020. | Mark Schiefelbein/AP Photo
President Donald Trump’s push to reopen the United States quickly this spring may have saved some short-term economic damage. But indicators both at home and from around the globe suggest that until the U.S. gets its coronavirus outbreak under control, its medium- and long-term economic prospects remain dicey.
As governments release their final figures for the second quarter of the year, it’s become clear that, more than anything else, a country’s success or failure combating the pandemic is what is driving economic performance.
Lockdown measures have taken a toll, which helps explain why parts of Europe and Asia performed far worse than the United States earlier this year. But the approach to reopening, including governments’ willingness to embrace measures like mask mandates, are more predictive of a country’s economic trajectory — whether that be a v-shape, swoosh, bird wing, or one of the many other monikers economists have come up with to describe the course of a recovery after a plunge in output.
That’s thanks in part to the harsh regional lockdown in Wuhan, where the virus originated, quarantine systems that isolated victims from their families and co-workers, and mask mandates (now lifted) in at-risk cities like Beijing.
Every member of the G7, meanwhile, is now in a deep recession, ranging from Japan’s 7.6 percent contraction in Q2, compared to the previous quarter, to Britain’s 20.1 percent contraction since Q1. The U.S. is about average among the seven countries, contracting by 9.5 percent in the same period compared with the first quarter of 2020.
India just reported the world’s worst recession: losing around a quarter of its output after implementing the world’s biggest lockdown. The Modi government’s severe measures bought valuable time to fortify its fragile health system, allowing the country to maintain a lower death rate than the United States. But India’s reported cases have doubled from around two million to four million over the past month, as it’s struggled to keep its population socially distant. And the country is now on track to overtake the U.S. in total reported cases, just ahead of the November election.
A Goldman Sachs report underscores the direct link between public health and the economy. The June 29 report estimates that a national face mask mandate in the United States “could potentially substitute for renewed lockdowns that would otherwise subtract nearly 5 percent from GDP.” Trump has rejected such a mandate, but Democratic presidential candidate Joe Biden has said he is open to the idea, if health officials recommend it.
Jan Hatzius, a Goldman Sachs analyst who co-authored the report, told POLITICO that U.S. economic results since July bear out the relationship between health and growth. The economy’s improvement, he noted, corresponds to a rising share of the American population subject to state and local mask mandates — from about 40 percent in June to its current 80 percent.
East Asian economies where mask-wearing is a national norm, such as China, Japan and South Korea, have avoided the worst recessions, as have countries like Vietnam and Singapore, which instituted mask mandates early on in the pandemic. Like China, Vietnam is now posting positive economic growth.
After becoming the first coronavirus epicenter outside of China, Italy used a mask mandate to help beat dire second quarter GDP predictions, vastly outperforming the United Kingdom, which resisted mask rules for months.
Masks are not the only medicine: Germany’s rigorous testing and well-prepared health system put its health and economic outcomes consistently ahead of both its large neighbors and the U.S.
Recession before recovery
While national economies are likely to have hit rock bottom back in April, countries that have failed to contain the virus such as the U.S. are on the path to prolonged recession, rather than recovery.
Under the Trump administration, the country started locking down in mid-March — and many states did not do so until April — well behind hard-hit European countries. And the U.S. opened up sooner. That helped achieve better economic numbers in the second quarter than much of Europe, but it also didn’t snuff out the virus.
Unable or unwilling to close state borders, the coronavirus has ricocheted around the U.S., in contrast to EU countries which closed their internal borders for months. Covid-19 case levels have plateaued at a much higher in the U.S. than in other rich countries, and public health officials fear the onset of flu season and cooler weather will cause another spike.
Modeling by the University of Washington’s Institute for Health Metrics and Evaluation projects American Covid-19 deaths to be around 408,000 by December 31 if current policies are maintained, rising to 608,000 if current pandemic restrictions are eased. If a national mask mandate were in place, the death toll could be limited to 286,000.
“In the COVID recession, economic conditions are too closely tied to the pandemic’s trajectory to be able to forecast with confidence the course of recovery,” writes Stanford University’s Michael J. Boskin.
Economists now warn that instead of the “v-shaped” recovery President Donald Trump has been promising — a reference to an economic bounce to match the dip of spring 2020 — it now risks a “double-dip” recession without renewed economic aid.
In the U.S., 80 percent of 235 economists surveyed by the National Association of Business Economics in August see a 1-in-4 chance of such a recession, where the economy would retrench again, as it did in the spring, rather than keep recovering.
The warning signs include mounting bankruptcies as a flood of U.S. government support from April to July turns into a trickle, and the likelihood that falling temperatures will dent outdoor dining and other tourism-related spending.
U.S unemployment numbers are another cause of concern. On Wednesday, United Airlines and Ford announced tens of thousands of layoffs, and the World Travel and Tourism Council estimated just over 12 million out of 16.8 million tourism-related jobs in the U.S. are at risk of being lost in a “worst case” scenario in coming months. The U.S. Travel Association puts the number at 8 million.
Article By RYAN HEATH