essay on covid 19 and its impact on economy

The Economic Impact of COVID-19 around the World

This article provides an account of the worldwide economic impact of the COVID-19 shock. In 2020, it severely impacted output growth and employment, particularly in middle-income countries. Governments responded primarily by increasing expenditure, supported by an expansion of the supply of money and debt. These policies did not put upward pressure on prices until 2021. International trade was severely disrupted across all regions in 2020 but subsequently recovered. For 2021, we find that the adverse effects of the COVID-19 shock on output and prices were significant and persistent, especially in emerging and developing countries.

Fernando Martin is an assistant vice president and economist, Juan M. Sánchez is a vice president and economist, and Olivia Wilkinson is a senior research associate at the Federal Reserve Bank of St. Louis.

INTRODUCTION

For over two years, the world has been battling the health and economic consequences of the COVID-19 pandemic. As of the writing of this article, deaths attributed to COVID-19 have surpassed six-and-a-half million people.  Global economic growth was severely impacted: World output by the end of 2021 was more than 4 percentage points below its pre-pandemic trend.  International trade was also significantly disrupted at the onset of the pandemic. The pandemic also prompted a strong policy response, resulting in a rise of government deficits and debt as well as widespread increases in the money supply. Finally, after an initial decline, prices have soared, resulting in elevated inflation rates.

This article provides an account of the worldwide economic impact of the COVID-19 shock. This shock was not felt simultaneously around the world, and mitigation policies, both health related and economic, varied substantially across countries. Yet there are some significant similarities in outcomes, especially when considering the pandemic period as a whole. Our analysis focuses on the shock's effects on specific groups of countries, related by their level of development and geographical location.

We find that the COVID-19 shock severely impacted output growth and employment in 2020, particularly in middle-income countries. The government response, mainly consisting of increased expenditure, implied a rise in debt levels. Advanced countries, having easier access to credit markets, experienced the highest increase in indebtedness. All regions also relied on monetary policy to support the fiscal expansion, and hence the money supply increased everywhere. The specific circumstances surrounding the shock implied that the expansionary fiscal and monetary policies did not put upward pressure on prices until 2021. International trade was severely disrupted across all regions in 2020 but subsequently recovered. When extending the analysis to 2021, we find that the adverse effects of the shock on output and prices have been significant and persistent, especially in emerging and developing countries.

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Article Contents

1. what is included in this special issue, 2. directions for future research, covid-19 and its impact on financial markets and the real economy.

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Itay Goldstein, Ralph S J Koijen, Holger M Mueller, COVID-19 and Its Impact on Financial Markets and the Real Economy, The Review of Financial Studies , Volume 34, Issue 11, November 2021, Pages 5135–5148, https://doi.org/10.1093/rfs/hhab085

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The COVID-19 pandemic severely disrupted financial markets and the real economy worldwide. These extraordinary events prompted large monetary and fiscal policy interventions. Recognizing the unusual nature of the shock, the academic community has produced an impressive amount of research during the last year. Macro-finance models have been extended to analyze the impact of epidemics. Empirical papers study the origins and consequences of the disruptions and the impact of policy interventions. New research evaluates the ongoing financial fragility and its relation to previous episodes and regulations. This special issue contains early contributions to this important and rapidly developing literature. 1

Ten years after the end of the Global Financial Crisis (GFC) and the Great Recession, the COVID-19 pandemic caught the world by surprise. While the GFC can be, at least in hindsight, understood as the consequence of developments in the housing, mortgage, and financial markets that had been building up over several years, the COVID-19 crisis was truly unexpected.

Many scientists have warned about the potential risks of pandemics, as part of a long list of possible rare disasters; however, governments, firms, and households appear to have been caught off guard by the coronavirus. At its roots, the COVID-19 crisis is not a financial or economic crisis; it is a health crisis that has adversely affected the lives of millions around the globe. However, through its effects on supply and demand conditions, and likely also on productivity, the COVID-19 crisis quickly turned into a large-scale financial and economic crisis.

Firms and households. For many firms, production requires face-to-face interactions between workers. As a result, the supply of many goods and services has been disrupted or even halted. Likewise, the provision of many goods and services requires face-to-face interactions with customers. Again, for those goods and services, demand has dropped sharply for fear of exposure to the virus. In many cases, government restrictions on various activities, as part of an effort to mitigate the effects of the virus, have likely led to economic contractions beyond the direct effect resulting from peoples’ fear of exposure. Given these contractions in supply and demand, U.S. gross domestic product (GDP) declined by 3.5% in 2020, the first annual decline since the Great Recession, and the biggest annual drop since the end of World War II. Millions of workers have lost their jobs. In the United States, the unemployment rate soared to 14.7% in April 2020, from 3.5% in February. More than a year later, in June 2021, it remained elevated at 5.9%, higher than in any of the five years prior to the crisis. As we are writing this editorial, in July 2021, the U.S. economy is still hurting. Many countries around the world have undergone similar developments. And, despite the impressive vaccination progress, significant uncertainty remains about the evolution of the virus in terms of variants, global vaccine inequity, etc., in the months and years ahead of us.

Financial markets. The effects of the COVID-19 crisis on firms and households, and the associated uncertainty, caused disruptions in many financial markets. Even the U.S. Treasury market showed signs of stress in March 2020. Corporate bond markets and money market funds experienced acute stress as well. Crucially, financial markets rebounded quickly. While the S&P 500 Index lost one-third of its value during the COVID-19 crash of February and March 2020, it gained all of it back by August 2020, and it has been rising ever since. Similarly, U.S. corporate bond yields (relative to 10-year Treasury yields) rose sharply during February and March 2020, but have rebounded quickly and returned to precrisis averages within the same year. The quick recovery of financial markets in the United States can be, at least in part, attributed to the Federal Reserve, which took swift actions to avert a full-fledged financial crisis. Still, these patterns led many to wonder about a possible disconnect between financial markets and the real economy and the relevance of financial market indicators for economic recovery.

Fiscal and monetary policy. Congress acted swiftly. In March 2020, it passed the |$\$| 2.3 trillion Coronavirus Aid, Relief, and Economic Security (CARES) Act, which included extended unemployment benefits and forgivable loans to small businesses, among other things. Additional stimulus packages followed, both in 2020 and in 2021. The Federal Reserve, too, acted right away. In March 2020, in an extraordinary FOMC meeting, the Federal Reserve lowered the target range for the Federal funds rate to near zero. Additionally, it initiated large-scale asset purchase and backstop funding programs to a wide variety of markets, including the corporate bond market. In taking all these actions, the Federal Reserve benefited from the playbook it had developed during the GFC and took additional actions, such as announcing the purchase of corporate bonds, an unprecedented move in the United States. The goal of the backstop funding programs was to make sure trading would continue in those markets, thus preventing market freezes of the sort witnessed during the GFC.

Is the COVID-19 crisis just “another” large-scale shock? We think not. Its origin as a health shock, an unprecedented global pandemic, makes it fundamentally different from previous financial and economic crises, including the GFC and the Great Recession. A deadly virus attacked not only the health of individuals but also that of the entire economy, creating stress in financial markets not seen since the GFC. While both Congress and the Federal Reserve stepped in right away to apply lessons learned from the GFC, the U.S. economy has not fully recovered more than a year later. Hence, putting the origin of the shock aside, the magnitude and scope of the intervention are surely unprecedented and will affect economics and finance research for years to come.

The articles contained in this special issue offer unique insights into the various challenges faced by economic agents during this historical crisis episode. Some of the articles focus on disruptions in financial markets, while others explore how shocks to the real economy may cause financial markets stress, affecting risk premiums and asset prices, and how policy intervention can help alleviate the stress. Some of the articles lay the foundation for new theories aimed to integrate epidemiology and economics, while others provide new data and empirical analyses to shed light on the implications for markets and the economy. Collectively, the articles in this special issue allow us to better understand the impact of the COVID-19 crisis on financial markets and the economy as a whole. In addition, as the GFC resulted in many changes to the regulatory landscape, the COVID-19 crisis also provides a real-life stress test to study which regulations have been successful and which parts of the financial sector will require (ongoing) attention.

This special issue includes 10 articles, described in more detail in Section 1 . Some of the papers were submitted via the regular submission process; others were solicited by the editors. All of them provide unique insights into the nature of this pandemic shock, its effect on financial markets and the economy, and the ensuing policy interventions. As developments of this pandemic and its aftermath are still ongoing, and new insights and data about the past events continue to emerge, we expect more research to follow in the future. We very much welcome key contributions to the literature on COVID-19 and its long-term consequences in the Review of Financial Studies . With this in mind, we conclude in Section 2 with a discussion of potential directions for future research.

This special issue contains 10 papers. The first group of papers, discussed in Section 1.1 , connects the spread of the virus and mitigation policies to economic decisions and asset price valuations. These papers present new directions by applying insights from epidemiology and understanding the implications for finance and economics. The papers in Section 1.2 study disruptions in financial markets that occurred as a result of the pandemic shock, and the role of monetary policy in alleviating them. These papers connect to prior literature on financial fragility and regulation and analyze what has changed during this episode, providing new insights for future regulations.

1.1 Macroeconomic models featuring pandemics

Eichenbaum, Rebelo, and Trabandt (2021) make a seminal contribution to the literature by embedding the canonical SIR (susceptible, infected, and recovered) model ( Kermack and McKendrick 1927 ) into a macroeconomic model. They do so to understand the interaction between economic decisions and epidemics. In the model, people can become infected while shopping, working, or interacting with others in scenarios unrelated to either consuming or working. Susceptible people understand they are less likely to become infected if they consume and work less. While this cautionary behavior mitigates the severity of the epidemic, it amplifies the severity of the economic downturn via demand (reduced consumption) and supply (reduced labor supply) effects. The model also allows for the possibility that the health care system becomes overwhelmed, and, in that case, people more aggressively cut back on consumption and work.

The competitive equilibrium is not Pareto optimal due to an externality that infected and susceptible people do not internalize the effect of their decisions on the spread of the virus. Eichenbaum, Rebelo, and Trabandt (2021) explore the value of government interventions and in particular containment policies. In the calibrated version of the model, they find that aggressive containment policies, and strengthening such measures as the fraction of infected people rises, would save roughly half a million lives in the United States. Their model features capacity constraints on the health care system and the possibility of vaccines and treatments being developed. While such policies mitigate the human cost of the virus, the economic costs are large, as consumption falls by 22% in the first year as opposed to 7% without containment policies.

Jones, Philippon, and Venkateswaran (2021) develop a related model to understand the inter-action between epidemics and economic activity. As before, the risk of infection increases when shopping and working. To mitigate the risk of becoming infected, people can work from home, except with lower productivity. A key feature of the model is that it allows for learning-by-doing, and productivity losses decline as people become more experienced in working from home. This aspect of the model enriches the dynamic implications and allows for testable predictions across sectors.

When analyzing externalities, Jones, Philippon, and Venkateswaran (2021) highlight a “fatalism effect”: people rationally anticipate early on in an epidemic the likelihood that they will be infected at some point in the future. This realization in turn weakens their incentives to be careful and to avoid becoming infected today. Government policy can be designed to offset this effect. In this model, the economic impact of mitigation policies is less severe because of peoples’ ability to work from home. In an extension, Jones, Philippon, and Venkateswaran (2021) consider a model with multiple sectors that each differ in their epidemiological parameters and ability to work from home. They calibrate the model using data on various sectors and show that the model’s predictions align with data on health and economic outcomes.

Hong, Wang, and Yang (2021) extend this literature by allowing for aggregate shocks to the transmission rates in the epidemic model. The second source of aggregate risk is the possibility of developing a vaccine. Instead of focusing on economic decisions in terms of consumption and labor supply, as in Eichenbaum, Rebelo, and Trabandt (2021) and Jones, Philippon, and Venkateswaran (2021) , the authors focus on the impact of the epidemic, and the related mitigation measures, on corporate earnings and firm valuation. Firms can take costly measures to mitigate the spread of infection. While taking such measures is costly today, doing so raises future expected earnings; therefore, mitigation measures may increase firm value.

Hong, Wang, and Yang (2021) estimate an epidemic model using data from 16 countries. This approach helps to improve the precision of the estimates. They first show that deterministic models, which are widely used in the literature, are worse at approximating the stochastic model at longer horizons, that is, when the development of the vaccine is further out. Second, the optimal mitigation strategy is affected by uncertainty in transmission rates, as there is an option value of waiting when there is a possibility that infections will die out. Also, as infection rates cannot be perfectly controlled, mitigation measures fluctuate with infection rates.

In terms of asset prices, the price-to-earnings ratio may actually increase during the onset of the pandemic. After all, while earnings drop sharply, in part because of mitigation costs, prices reflect the temporary nature of the shock and the recovery of earnings once a vaccine is discovered. Using their model, Hong, Wang, and Yang (2021) estimate that asset prices would fall by 15% in the absence of any mitigation measures.

The previous three papers provide evidence to support some of the key predictions of the models in connecting the spread of the virus to fluctuations in real and financial markets. But, this evidence is at a fairly aggregated level. Ultimately, more granular data are needed to understand the various effects of the pandemic and its interaction with the economy. Spiegel and Tookes (2021) make an important step in this direction. They collect comprehensive data on business closures and other restrictions across counties in the United States over time as the pandemic has evolved. With these data, they explore how the different policies are related to fatality rates in the respective counties in the following weeks. If decisions about mitigation policies should be based on a cost-benefit analysis, balancing the economic costs against the health benefits, these estimates can be essential.

The authors provide a rich set of results. Mask policies, which presumably have low economic costs, are generally found to be associated with lower future fatality rates. Other policy measures that entail more significant economic costs, such as restaurant, bar, and gym closures, are also found to be associated with lower fatalities. Yet, additional measures, such as the closure of low- to medium-risk businesses, may have been counterproductive. When interpreting the results in the paper, one must think carefully about causality versus correlation. To facilitate a causal interpretation, the authors conduct various tests, such as looking at the effects of statewide policies on small counties or comparing counties near state borders.

1.2 Financial market disruptions and the impact of policy interventions

With a shock to the real economy of a magnitude, such as the COVID-19 shock, one would expect financial turmoil to follow. The evolution of the shock, and the areas of the financial system affected by the shock, however, came as a surprise. The epicenter of the financial turmoil was to a large extent the corporate bond market. Haddad, Moreira, and Muir (2021) study this market during the height of the COVID-19 crisis in March and April of 2020. The stress exhibited in this market was manifested by an increase in spreads and a decrease in liquidity. What is most unique about this episode is that the greatest stress was seen for assets on the safer end of the spectrum. Also, the increase in spread of these corporate bonds was not accompanied by a similar increase in spreads of credit default swaps (CDS), so a large part of it must have been driven by sources other than an increase in credit risk that could have resulted from the real shock.

The authors explain these patterns as a result of liquidity shortages in the corporate bond market. Demand for cash by various institutions, such as mutual funds, accompanied by the constraints faced by financial intermediaries—which are both phenomena studied in other papers—contributed to extreme liquidity pressure, pushing down the prices of assets well beyond what the increase in credit risk would imply. Hence, the paper provides important evidence of the fault lines in the financial system exposed by this crisis. The authors also analyze what led to the quick stabilization of, and recovery in, this market, and attribute it to a large extent to the intervention by the Federal Reserve, and in particular the unprecedented announcement that it would purchase corporate bonds.

Kargar et al. (2021) also focus on the corporate bond market at the height of the COVID-19 crisis and its aftermath. To gain a better understanding of the changes in liquidity in this market, they follow pre-COVID-19-crisis literature and distinguish between risky-principal trades, where dealers offer immediacy by purchasing the asset and holding it until finding a buyer, and agency trades, where the seller retains the asset until the dealer finds a buyer. They show that the cost of risky-principal trades increased dramatically in the height of the crisis, leading customers to switch to the less-preferred agency trade. Hence, the way liquidity was compromised is reflected not only in larger costs but also in slower speed.

They then build a model featuring demand for the different types of liquidity by different investors and an intermediary sector that provides the different liquidity services at some costs. Estimating the model based on COVID-19-crisis data, they argue that the patterns seen in the market can be explained as a combination of increased demand for immediacy and an increase in the cost that dealers have to bear to provide liquidity in the risky-principal route. They estimate that the demand for immediacy rose sharply by about 200 bps per dollar of transaction, but that it receded quickly and fully following the announced interventions by the Federal Reserve. On the other hand, the increase in cost of providing liquidity reversed only partially, due to balance sheet constraints that continued to be binding. Since regulations that were put in place after the 2008 crisis increased constraints on dealers, they might have contributed to the fragility in the corporate bond market in 2020, a market that was not at the center of attention during the GFC.

Another episode of stress in financial markets following COVID-19 developments materialized in prime money market funds. Li et al. 2021 study this episode. In two weeks in March 2020, institutional prime money market funds lost about 30% of their assets under management. This episode was particularly interesting, because money market funds experienced runs in the crisis of 2008 and were since then at the center of regulatory attention with different reforms introduced to maintain their stability. A natural question is whether these reforms were of any help, and why runs still occurred.

According to the paper, a key reform enacted following the 2008 crisis was actually a primary source for the current episode of fragility. This reform allows money market funds to impose redemption gates and liquidity fees on investors if a measure of liquidity, the weekly liquid assets (WLAs), falls below 30%. While the intention of the reform was to curb runs as they start to intensify, it may actually have the opposite effect, as the impending suspension of liquidity may cause investors to rush to redeem as long as they can. In a sense, the expected intervention may amplify the strategic complementarities behind a run. Indeed, the authors show that funds that approached the threshold in the COVID-19 crisis saw increased redemptions. Such sensitivity of outflows to funds’ WLAs was not seen in normal times, or in times of stress before the reform, such as the 2008 financial crisis. Also, a similar sensitivity is not observed in the COVID-19 crisis with respect to another key measure of liquidity, which is not used by the regulation to determine the eligibility for imposing gates. Finally, like in the case of the corporate bond market, the paper finds that emergency intervention by the Federal Reserve was instrumental for stopping the outflows eventually.

While corporate bond markets and money market funds experienced turmoil following the outbreak of COVID-19, banks exhibited significant resilience. Large inflows of deposits allowed them to provide credit to the real economy. This partly reflects the stronger financial positions banks held leading up to this crisis, following large reforms in the aftermath of the GFC, in which banks’ fragilities were exposed. But, what are some of the other factors that contributed to depositors’ flows in 2020, and how related were they to the pandemic? Using detailed branch-level deposits and county-level COVID-19 infections data, Levine et al. (2021) study these questions.

The evidence they provide points to a channel of precautionary savings. Households in regions with higher infection rates felt more anxious about the developments of the pandemic and put more money in deposits in local branches. As a result of this greater supply of deposits, these banks reduced the rates they pay on deposits. The paper runs a battery of tests to show that this precautionary-savings channel dominated other channels, such as flight to safety or greater demand for deposits by banks, in explaining the patterns of deposit flows across locations and over time during the pandemic. Hence, the paper contributes to a literature on the response of households to this unprecedented crisis.

Turmoil in the financial system is of great concern because of possible spillovers to the real economy. Evidence from the GFC, for example, points clearly to such spillovers, as firms had difficulties raising financing for their investments and operations. An important question in the current episode is whether firms were better prepared to possible financial disruptions. Fahlenbrach, Rageth, and Stulz (2021) document significant heterogeneity in firms’ resilience during the COVID-19-driven stock market collapse of February and March 2020. They hypothesize that firms with greater financial flexibility can more easily fund cash shortfalls and therefore should be less affected by the COVID-19 crisis than less financially flexible firms. Indeed, they find that firms which are more financially flexible—based on their cash holdings, short-term debt, and long-term debt at the end of 2019—performed significantly better during the stock market collapse; the stock price of highly flexible firms dropped by 26% less than the stock price of firms with low flexibility. Importantly, the performance gap continues to persist during the subsequent rebound of the stock market, suggesting that the ability to fund cash shortfalls in times of crisis may have long-lasting value implications.

Did financial flexibility this time have a similar value as in previous crisis episodes? The answer is both yes and no. While the value of cash holdings and (having less) long-term debt is quantitatively similar to what it was during the GFC, (having less) short-term debt does not seem to play a significant role for stock returns during the GFC, in contrast to the COVID-19 crisis. Furthermore, Fahlenbrach, Rageth, and Stulz (2021) show that the worst-performing industries during the GFC differ from the worst-performing industries during the COVID-19 crisis, in the sense that the latter industries score much higher on measures of COVID-19 exposure based on the need for social distancing. For these industries, the authors find that the value of cash holdings is especially high during the COVID-19 crisis.

Finally, an important theme emerging from the papers on financial fragility in the COVID-19 crisis is how monetary policy interventions, largely in the form of asset purchases, have helped to stabilize markets. Since this form of intervention is still relatively new and not fully understood, there is scope for more theoretical analysis. Caballero and Simsek (2021) develop a macroeconomic model to analyze the effectiveness of large-scale asset purchases (LSAPs). The model features risk-tolerant (“banks”) and risk-intolerant (“households”) investors. In equilibrium, banks are levered and highly exposed to aggregate shocks, such as the negative supply shock due to COVID-19. In response to such a shock, the effective risk tolerance of the market falls, and the required Sharpe ratio rises. If the shock is small and temporary, a small increase in the Sharpe ratio suffices for financial markets to clear. If the shock is large, however, even if it is temporary, the required increase in the Sharpe ratio is large, and the decline in asset prices and aggregate demand may exceed the decline in supply. The central bank can act by cutting interest rates, but this no longer works if the interest rate is constrained. In this case, if banks’ initial leverage is sufficiently high, multiple equilibria exist, and the feedback between asset prices and risk tolerance can be so strong that banks fail.

Caballero and Simsek (2021) show that, in this case, it is beneficial to move some of the risk to the balance sheet of the government. This reduces the required Sharpe ratio, improves asset prices and aggregate demand, and mitigates the recession. The mechanism explored in the model is more powerful when demand is less elastic, which is consistent with a growing literature on asset demand estimation.

The COVID-19 crisis has opened up new directions for future research. Some of them have barely been explored before, while for others, the recent events provide new evidence and insights that will likely affect how they evolve. In this section, we discuss several potential directions of research that we think are ripe for exploration.

2.1 Economics in the shadow of pandemics

Prior to COVID-19, the 1918 influenza pandemic was the most severe pandemic. As people tend to be affected by more recent events, it is thus not surprising that many have not thought of pandemics as a very imminent risk. Some scientists and policy makers have warned against such risk before the current pandemic, but it would be fair to say that it has not been internalized on many levels. As such, pandemics also hardly played a role in modern studies of economics.

The events surrounding the COVID-19 crisis have uncovered big gaps in knowledge. Pandemics have direct and severe implications for many areas of economics, most prominently, the very pertinent trade-offs between health and the economy that might be part of various decisions made by policy makers in developing mitigation policy. Papers in this issue provide the first steps in understanding such questions, incorporating epidemiological models into macroeconomics and asset pricing, and using detailed data on policies and their consequences.

Regardless of the future path of the current pandemic, we think that these issues will not be easily forgotten and that research on these topics will continue to evolve to incorporate more knowledge from epidemiology into economics and finance. After all, future pandemics might be around the corner, and this knowledge will be important to prepare for them and guide future policies. More detailed data about the current pandemic is also constantly being revealed and analyzed—for example, about people’s activities and movements at various stages of the pandemic—and this will foster a deeper understanding of the connections between the pandemic, policies, and economic activity.

2.2 Technology and social distancing

The pandemic exposed a dimension of risk that was not salient before. This is the risk of communicable diseases spreading as a result of social gatherings and interactions. Firms whose business model heavily depends on gatherings and interactions found themselves in a dire situation. Such firms will face this risk in the future even after the pandemic ends. Other firms found out that they can develop alternative solutions, at least for a period of time. Technology clearly played an important role. If technology was not in place, the path of the pandemic would have been completely different.

Putting the pandemic aside, the use of such technologies opened new questions for the future, as to whether their use will persist and change the way things were done before. Borne out of necessity, the widespread adoption of Zoom and related video-communication technologies is likely to affect how business will be conducted going forward. While many business interactions have been shown to be much less effective in virtual format, for example, conferences, others, such as small-group business meetings, may be conducted remotely more often. Similarly, remote working will likely be more frequent than before, even though offices will continue to play a role.

Whatever the degree of the change will be, if physical proximity is becoming less important, there will likely be implications for the relationships between firms and workers, banks and small-business borrowers, venture capitalists and portfolio companies, plants and headquarters, to name just a few examples. Will we see an increase in physical distance between transacting parties, reminiscent of the “information revolution” in small-business lending in the 1980s and 1990s? Will this expand the availability of credit to marginal firms or individuals? What are the implications for customer-supplier networks, the boundaries of the firm, or corporate governance? Will these developments lead to measurable improvements in productivity? More research and evidence on this issue is needed.

2.3 Functioning of financial markets

Signs of instability cropped up in repo markets in Fall 2019, whereas the events during Spring 2020 highlighted the fragility of Treasury and corporate bond markets more broadly. Given the importance of Treasury securities as safe assets in global financial markets and the relevance of corporate bond markets for the funding of firms, improving the resilience of these markets is essential.

In doing so, it is important to understand the incentives and regulations of various intermediaries, including broker-dealers, money market funds, and open-end mutual funds. How does each one contribute to financial fragility and systemic risk? It is also interesting to rethink the broader architecture of the financial sector and its connection to the Federal Reserve, and which intermediaries, for instance, can access certain facilities.

The connection to the regulations of the post-GFC era, and the test of such regulations in the COVID-19 crisis, is particularly interesting. Regulations have strengthened banks, and indeed banks have been resilient in the current crisis. However, these regulations made the corporate bond and Treasury markets more fragile by shifting activity to open-end funds and by constraining the ability of dealers to intermediate. The crisis thus provides evidence that calls for a re-evaluation of the prior regulation and for an approach that considers the system as a whole rather than specific types of institutions. Another interesting case is that of money market funds, for which previously enacted regulations might have backfired and created unintended fragility. Understanding such unintended consequences and balancing them against the original plans is an important task for future research.

2.4 Implications for fiscal and monetary policy

As short-term interest rates hit zero during the GFC, central banks all over the world actively intervened in financial markets to stimulate economic activity and inflation. Interventions have happened once again during the COVID-19 crisis, this time also to improve liquidity conditions. The COVID-19 interventions have further increased the footprint of central banks in asset markets. At this point, it seems difficult to think about asset prices without accounting for the role central banks play.

This raises a series of important questions. First, as central banks move beyond purchasing government bonds and related securities to corporate bonds and, in some cases, even equities, a key question is how this affects investors’ expectations going forward, and how the central banks’ actions may distort the pricing of risk. Second, as the ultimate goal is to affect economic activity and inflation, it is unclear whether it is optimal to purchase Treasuries, mortgage-backed securities, or corporate bonds. The ultimate effect will depend on the price impact in the various markets and how changes in associated asset prices affect economic decisions and inflation. Some research on the effect of asset purchases was based on the GFC experience, but the current experience provides new avenues to explore. Third, most of the empirical and theoretical work on large-scale asset purchases focuses on a single country. During the pandemic, most central banks acted in concert, which raises new questions about the impact on global financial markets.

In addition to monetary policy, governments all over the world also took decisive actions to support households and firms in light of the pandemic. Understanding the short- and long-run effectiveness of such fiscal policy interventions, across states and countries, is an important question for future research.

The flipside of such large-scale interventions is a sharp increase in debt-to-GDP levels all over the world. An active literature explores the fiscal capacity of governments and how it depends on the level of interest rates relative to growth rates, wealth inequality, and asset risk premiums. It also raises questions about the coordination between fiscal and monetary policy, as well as central banks’ independence.

2.5 The rise of zombie firms

During the onset of the COVID-19 crisis, there was widespread agreement that governments should do whatever it takes to support the economy and limit long-term damage, while fighting the virus. However, as the health situation is improving in first-world countries due to rising vaccination rates, the question arises about how much support is still warranted.

One natural concern is that firms that otherwise would have defaulted, absent the pandemic, are now able to survive. The subsequent low-rate environment and low credit spreads, perhaps in part because of large-scale asset purchases, contribute to such concerns. The potential rise of zombie firms also has implications for the stability of institutions that heavily invest in corporate bonds, such as insurance companies and open-end mutual funds.

In future research, it will be important to develop tools to identify zombie firms, analyze their effect on the macroeconomy and financial cycles, and consider policies to reduce the resulting inefficiency. Some experience in understanding zombie firms comes from past episodes, such as Japan in the 1990s, but a lot still remains unknown. The challenges are dynamic and constantly changing. For example, if fundamental shifts occur because of a greater reliance on remote interactions, this will affect which firms have long-term viability and which are likely to become zombies.

2.6 Household and small-business finance

Households and small businesses were especially affected by the COVID-19 crisis. Evaluating their responses is challenging, however, as the CARES Act of March 2020 was passed shortly after the pandemic began to spread throughout the United States. At the aggregate level, observed outcomes are thus jointly determined by the pandemic and the ensuing policy intervention. However, all of the stimulus packages included in the CARES Act were targeted, creating scope for identification strategies akin to those employed in empirical studies of policies implemented in the wake of the Great Recession to aid households and small businesses.

The first-order questions are evident: Did the |$\$| 300 billion in cash payments to individuals and the |$\$| 260 billion in unemployment benefits stimulate consumption? Did the |$\$| 350 billion paycheck protection program—an additional |$\$| 320 billion was added later—protect jobs and small businesses? But important second-order questions also arise: What goods and services were most affected (i.e., did the composition of consumption change)? What regions or industries benefited the most, and why? Finally, besides studying responses to government policy, researches can exploit a wide range of both geographical and temporal variation in the spreading of the pandemic to study the consumption and employment responses of households and businesses, respectively. The COVID-19 crisis provides a rich laboratory for research that is on par with previous crises, such as the Great Recession.

2.7 Managing and insuring rare and emerging risks

A long list of rare disasters, which typically includes pandemics, has been discussed for years, yet governments, firms, and households seem unprepared. Supply chains turn out to be fragile, including those critical for the development and production of medical devices and drugs. In addition, governments followed very different strategies to fight the virus, yet the lessons learned and best practices have not been widely shared. This raises important questions about the resilience of the global economy to rare disasters, such as, climate change and cyber risk. Also, a large literature is concerned with the determinants of economic growth and how government policies may affect long-run growth. Governments’ slow learning about policies that spur growth may have important long-run consequences.

This Introduction has been written for a special issue of the Review of Financial Studies focused on research on the COVID-19 crisis.

Caballero R. J. , and Simsek A. . 2021 . A model of endogenous risk intolerance and LSAPs: Asset prices and aggregate demand in a “COVID-19” shock. Review of Financial Studies 34:5522–80.

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Annual Report 2020

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The COVID-19 Economy

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Annual Report 2020 | Federal Reserve Bank of St. Louis

Introduction: The COVID-19 Economy

By Kevin L. Kliesen and Christopher J. Neely

In early January 2020, U.S. and world health organizations began to sound the alarm about a novel coronavirus that originated in Wuhan, China, in late 2019. At the time, there were few signs of the subsequent pandemic that was about to throttle the world economy.

For example, the U.S. unemployment rate in January and February was effectively at a 50-year low of 3.5%. As Federal Reserve Chair Jerome Powell and other Fed officials have pointed out, the strong job market was especially beneficial for low-income workers. See Powell’s Aug. 27, 2020, speech “ New Economic Challenges and the Fed’s Monetary Policy Review .” The consensus of economic forecasters—surveyed by the Federal Reserve Bank of Philadelphia in early February—was that “the U.S. economy in 2020 looks stronger now than it did three months ago.” See the Philadelphia Fed’s “ First Quarter 2020 Survey of Professional Forecasters ,” released Feb. 14, 2020.

This optimism ended up being misplaced, though it shouldn’t be surprising, given the impossibility of predicting pandemics.

COVID-19’s Effects on the Economy

The effects of the pandemic spread through the economy in late winter and early spring. By the end of February, global stock markets had plunged; in March and April, payroll employment likewise fell sharply. The National Bureau of Economic Research’s Business Cycle Dating Committee would later declare that the nation’s record-long business expansion ended sometime in February.

The COVID-19 pandemic was the second major shock to throttle the nation’s economy in the past dozen years. However, it was unique in that it resulted partially from the policies enacted intentionally, albeit with the expectation they would be temporary. These measures triggered massive job losses and the shuttering of businesses—some briefly, some permanently.

With virus case counts and fatalities rising, federal COVID-19 guidelines issued on March 16 urged the public to, among other things, work from home if possible, avoid social gatherings of more than 10 people—including outside-the-home activity (e.g., dining out)—and avoid discretionary travel. FRASER’s Timeline of Events Related to the COVID-19 Pandemic contains links to announcements such as this one. State and local governments followed suit with various measures to curb the pandemic, including many that reduced economic activity. In addition, many people voluntarily chose to avoid restaurants, gyms and travel.

Some 22 million jobs were lost in March and April. To put this in perspective, the number almost matched the total number of jobs the U.S. gained over the previous 10 years. The official unemployment rate more than tripled to 14.8% in April, but this rate likely significantly understated the true rate. The Bureau of Labor Statistics (BLS) reported that the official unemployment rate likely would have peaked at about 20% if many survey respondents had correctly classified themselves as unemployed but on temporary layoff because of COVID-19-related business closures. The BLS offers a more detailed explanation on its webpage discussing frequently asked questions about the impact of the pandemic on the April 2020 employment situation .

The decline in national output and income was as staggering as the job losses: Real gross domestic product (GDP) fell at a 5% annual rate in the first quarter of 2020 and at an unprecedented 31.4% rate in the second quarter. The decline in real GDP was worse in other countries. In the United Kingdom, for example, real GDP fell at a nearly 60% rate during the second quarter.

With the U.S. economy weakening at a rapid pace, the Federal Open Market Committee cut its federal funds rate target to zero and expanded its purchases of Treasury and mortgage-backed securities. Meanwhile, the Board of Governors, with the approval of the U.S. Treasury secretary, restarted several special lending facilities from the 2007-09 financial crisis and devised five new facilities. Four pandemic-specific pieces of legislation were signed into law during the spring, including the CARES Act . The total amount allocated by Congress exceeded $2.7 trillion, including a little more than $450 billion to fund the five new Federal Reserve lending facilities.

Some weekly indicators suggest that the economy bottomed out in late April/early May. As the initial pandemic wave eased and social distancing protocols were relaxed, key monthly indicators—such as payroll employment, personal consumption expenditures, new home sales and industrial production—rose sharply in May and continued to rise during summer. Real GDP rose at an unprecedented 33.4% annual rate in the third quarter, erasing much of the declines of the previous two quarters. Large increases in expenditures and production and the rehiring of furloughed workers suggested that the worst had passed.

The pace of U.S. economic activity continued to increase over the last three months of the year, although a resurgence of the virus during the fall of 2020 spurred some economists to dramatically dial back their expectations for the economy’s late 2020 and early 2021 performance.

To insure against the possibility of much weaker growth, an additional fiscal support package totaling a little more than $900 billion was signed into law in late December. This fiscal package spurred many forecasters to expect positive real GDP growth in the first quarter of 2021; prior to passage of the legislation, some forecasters had expected negative growth in the first quarter. The consensus of professional forecasters in early 2021 was that the development and distribution of vaccines would help trigger a vibrant rebound in economic activity over the final six to nine months of 2021, perhaps extending into 2022.

The pandemic-spawned economic contraction and recovery is one for the record books. Economists have begun to focus on the potential longer-run effects of the pandemic, and three questions stand out.

• Will the large number of bankruptcies, permanent business closures and the possible erosion of job skills due to long-term spells of unemployment (all of which contribute to what economists call “economic scarring” For more about economic scarring, see Julian Kozlowski’s 2020 Economic Synopses article “ COVID-19: Scarring Body and Mind .” ) lower long-term GDP growth?
• Will the shift to e-commerce and a corresponding greater propensity to work from home permanently reduce the number of retail establishments and lower the demand for commercial office space?
• Will global supply chains need to be reconfigured to mitigate future disruptions to the production and distribution process for manufacturers?

Transitioning Leadership, Maintaining Strong Research

Christopher waller: a decade of leading the st. louis fed’s research division.

After more than a decade serving as the St. Louis Fed’s research director, Chris Waller was confirmed by the U.S. Senate as a member of the Board of Governors of the Federal Reserve System and was officially sworn into his role in December 2020. Waller is the second St. Louis Fed economist to be elevated to the Board, following Susan Bies, who served as a Fed governor from 2001 to 2007.

Following a distinguished career in academia, Waller joined the St. Louis Fed in 2009. He is a highly respected scholar, professor and expert in central banking and monetary policy. In 2020, he directed the Research Division’s intensive study of the economic impact of the COVID-19 pandemic at a time when very little was known about the virus.

“Given the significant challenges the pandemic imposed on the global macroeconomy, we began an intensive effort at the St. Louis Fed to research all aspects of this health shock to better understand the differing outcomes on certain segments of society in hopes that policy could be directed to those most impacted,” Waller noted. “This rigor in macroeconomic research and real-time data analysis underscores the St. Louis Fed tradition of being a pioneer on the frontier of macroeconomic research. It’s a tradition that I carried on during my tenure as research director and makes me proud to be a St. Louis Fed alum.”

Waller’s impact on the St. Louis Fed was indelible, and his colleagues expect he will have a positive and lasting influence in his term on the Board of Governors.

Meet the St. Louis Fed’s New Research Director: Carlos Garriga

Carlos Garriga succeeded Chris Waller as research director of the St. Louis Fed, continuing its tradition of world-class thought leadership in economic research. Garriga oversees a department within the St. Louis Fed that ranks among the top of all research institutions in central banking and academic research worldwide.

Garriga joined the St. Louis Fed in 2007 and advises Bank President Jim Bullard on monetary policy issues. Garriga’s research focuses on macroeconomics and housing, household finance, monetary economics and asset pricing, and public economics. His work has been widely published in leading economic academic journals.

“I’m honored to carry on the St. Louis Fed tradition in using academic-style research to help shape the debate in the economics profession,” Garriga said. “The diversity of experience among our research staff, including the depth and breadth of research coverage and innovative thinking, allows the Bank to do work that can help address the economic challenges of the day. In fact, this report highlights our economists’ ground-breaking study of the emerging pandemic on the U.S. and world economies.”

Garriga, who previously was an assistant professor of economics at Florida State University and the Universitat de Barcelona in Spain, is eager to continue the Research Division’s investigations and de novo research into the effects of COVID-19 on the nation’s economy.

St. Louis Fed Pandemic Research

To better understand how the pandemic and the various policy responses to it have affected the U.S. economy, the St. Louis Fed’s Research Division undertook a remarkable amount of research and analysis on the pandemic economy. From mid-March through December 2020, our economists produced scores of articles, blog posts and working papers on pandemic-related topics. In addition, they maintained and updated various data series related to the pandemic on our websites.

The essays contained in this report describe a portion of our pandemic-focused work in 2020—highlighting the effects of the pandemic on financial and labor markets, fiscal policy, international trade and designing policies to address pandemics with the lowest economic costs.

COVID-19 Online Resources:

• St. Louis Fed COVID-19 Resource Page and Statement from President Bullard
• St. Louis Fed Research Division COVID-19 Page
• FRED COVID-19 Economic and Financial Data Tracking Dashboards

Notes and References

• See Powell’s Aug. 27, 2020, speech, “ New Economic Challenges and the Fed’s Monetary Policy Review .”
• See the Philadelphia Fed’s “ First Quarter 2020 Survey of Professional Forecasters ,” released Feb. 14, 2020.
• FRASER’s Timeline of Events Related to the COVID-19 Pandemic contains links to announcements such as this one.
• The BLS offers a more detailed explanation on its webpage discussing frequently asked questions about the impact of the pandemic on the April 2020 employment situation .
• The consensus of professional forecasters in early 2021 was that the development and distribution of vaccines would help trigger a vibrant rebound in economic activity over the final six to nine months of 2021, perhaps extending into 2022.
• For more about economic scarring, see Julian Kozlowski’s 2020 Economic Synopses article “ COVID-19: Scarring Body and Mind .”

Read more about the author and his research .

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Chapter 1. The economic impacts of the COVID-19 crisis

The COVID-19 pandemic sent shock waves through the world economy and triggered the largest global economic crisis in more than a century. The crisis led to a dramatic increase in inequality within and across countries. Preliminary evidence suggests that the recovery from the crisis will be as uneven as its initial economic impacts, with emerging economies and economically disadvantaged groups needing much more time to recover pandemic-induced losses of income and livelihoods . 1

In contrast to many earlier crises, the onset of the pandemic was met with a large, decisive economic policy response that was generally successful in mitigating its worst human costs in the short run. However, the emergency response also created new risks—such as dramatically increased levels of private and public debt in the world economy—that may threaten an equitable recovery from the crisis if they are not addressed decisively.

Worsening inequality within and across countries

The economic impacts of the pandemic were especially severe in emerging economies where income losses caused by the pandemic revealed and worsened some preexisting economic fragilities. As the pandemic unfolded in 2020, it became clear that many households and firms were ill-prepared to withstand an income shock of that scale and duration. Studies based on precrisis data suggest, for example, that more than 50 percent of households in emerging and advanced economies were not able to sustain basic consumption for more than three months in the event of income losses . 2 Similarly, the average business could cover fewer than 55 days of expenses with cash reserves . 3  Many households and firms in emerging economies were already burdened with unsustainable debt levels prior to the crisis and struggled to service this debt once the pandemic and associated public health measures led to a sharp decline in income and business revenue.

The crisis had a dramatic impact on global poverty and inequality. Global poverty increased for the first time in a generation, and disproportionate income losses among disadvantaged populations led to a dramatic rise in inequality within and across countries. According to survey data, in 2020 temporary unemployment was higher in 70 percent of all countries for workers who had completed only a primary education. 4   Income losses were also larger among youth, women, the self-employed, and casual workers with lower levels of formal education . 5   Women, in particular, were affected by income and employment losses because they were likelier to be employed in sectors more affected by lockdown and social distancing measures . 6

Similar patterns emerge among businesses. Smaller firms, informal businesses, and enterprises with limited access to formal credit were hit more severely by income losses stemming from the pandemic. Larger firms entered the crisis with the ability to cover expenses for up to 65 days, compared with 59 days for medium-size firms and 53 and 50 days for small and microenterprises, respectively. Moreover, micro-, small, and medium enterprises are overrepresented in the sectors most severely affected by the crisis, such as accommodation and food services, retail, and personal services.

The short-term government responses to the crisis

The short-term government responses to the pandemic were extraordinarily swift and encompassing. Governments embraced many policy tools that were either entirely unprecedented or had never been used on this scale in emerging economies. Examples are large direct income support measures, debt moratoria, and asset purchase programs by central banks. These programs varied widely in size and scope (figure 1.1), in part because many low-income countries were struggling to mobilize resources given limited access to credit markets and high precrisis levels of government debt. As a result, the size of the fiscal response to the crisis as a share of the gross domestic product (GDP) was almost uniformly large in high-income countries and uniformly small or nonexistent in low-income countries. In middle-income countries, the fiscal response varied substantially, reflecting marked differences in the ability and willingness of governments to spend on support programs.

Figure 1.1 Fiscal response to the COVID-19 crisis, selected countries, by income group

Similarly, the combination of policies chosen to confront the short-term impacts differed significantly across countries, depending on the availability of resources and the specific nature of risks the countries faced (figure 1.2). In addition to direct income support programs, governments and central banks made unprecedented use of policies intended to provide temporary debt relief, including debt moratoria for households and businesses. Although these programs mitigated the short-term liquidity problems faced by households and businesses, they also had the unintended consequence of obscuring the true financial condition of borrowers, thereby creating a new problem: lack of transparency about the true extent of credit risk in the economy.

Figure 1.2 Fiscal, monetary, and financial sector policy responses to the COVID-19 crisis, by country income group 

The large crisis response, while necessary and effective in mitigating the worst impacts of the crisis, led to a global increase in government debt that gave rise to renewed concerns about debt sustainability and added to the widening disparity between emerging and advanced economies. In 2020, 51 countries—including 44 emerging economies—experienced a downgrade in their government debt risk rating (that is, the assessment of a country’s creditworthiness) . 7

Emerging threats to an equitable recovery

Although households and businesses have been most directly affected by income losses stemming from the pandemic, the resulting financial risks have repercussions for the wider economy through mutually reinforcing channels that connect the financial health of households, firms, financial institutions, and governments (figure 1.3). Because of this interconnection, elevated financial risk in one sector can spill over and destabilize the economy as a whole. For example, if households and firms are under financial stress, the financial sector faces a higher risk of loan defaults and is less able to provide credit. Similarly, if the financial position of the public sector deteriorates (for example, as a result of higher government debt and lower tax revenue), the ability of the public sector to support the rest of the economy is weakened.

Figure 1.3 Conceptual framework: Interconnected balance sheet risks

This relationship is, however, not predetermined. Well-designed fiscal, monetary, and financial sector policies can counteract and reduce these intertwined risks and can help transform the links between sectors of the economy from a vicious doom loop into a virtuous cycle.

One example of policies that can make a critical difference are those targeting the links between the financial health of households, businesses, and the financial sector. In response to the first lockdowns and mobility restrictions, for example, many governments supported households and businesses using cash transfers and financial policy tools such as debt moratoria. These programs provided much-needed support to households and small businesses and helped avert a wave of insolvencies that could have threatened the stability of the financial sector.

Similarly, governments, central banks, and regulators used various policy tools to assist financial institutions and prevent risks from spilling over from the financial sector to other parts of the economy. Central banks lowered interest rates and eased liquidity conditions, making it easier for commercial banks and nonbank financial institutions such as microfinance lenders to refinance themselves, thereby allowing them to continue to supply credit to households and businesses.

The crisis response will also need to include policies that address the risks arising from high levels of government debt to ensure that governments preserve their ability to effectively support the recovery.   This is an important policy priority because high levels of government debt reduce the government’s ability to invest in social safety nets that can counteract the impact of the crisis on poverty and inequality and provide support to households and firms in the event of setbacks during the recovery. 

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The Global Economic Impacts of Covid-19

Photo: PHILIP FONG/AFP via Getty Images

Critical Questions by Stephanie Segal and Dylan Gerstel

Published March 10, 2020

Confirmed cases of the novel coronavirus (Covid-19), which first appeared in China at the end of last year, now exceed 115,000 as of March 10 and are likely to climb significantly higher. While over two-thirds of the total confirmed cases are in mainland China, the vast majority of new cases reported since February 25 have occurred outside the country. What was initially seen as a largely China-centric shock is now understood to be a global crisis. The virus’s spread has regrettably borne out analysts’ downside scenarios, with investors digesting the implications of disrupted supply chains, official containment measures, and spillovers from the real economy to financial markets. A decision by two of the world’s largest energy producers to maintain current levels of production, despite falling energy prices, has further unnerved investors while questions about governments’ abilities to mount an effective and coordinated response linger. The increased uncertainty has led to financial market volatility last seen during the global financial crisis.

Q1: What will be the impact of Covid-19 on the economy?

A1: The extent of the damage will depend on how quickly the virus is contained, the steps authorities take to contain it, and how much economic support governments are willing to deploy during the epidemic’s immediate impact and aftermath.

Early indications of Covid-19’s impact on the Chinese economy are worse than initially forecast. Surveys of China’s manufacturing and services sector plunged to record lows in February, automobile sales sank a record 80 percent , and China’s exports fell 17.2 percent in January and February. The official data confirmed a widespread slowdown in economic activity foreshadowed in low pollution levels and depressed shipping traffic , among other informal barometers. Analysts have sharply revised down estimates of Chinese growth, with many now predicting a drop in first quarter GDP, the first contraction since China began reporting quarterly data in 1992. As Covid-19 spreads, China’s economic recovery will be challenged as demand from other countries drops as they cope with the virus.

Although the outbreak appears to have slowed in China, Covid-19 and its impacts have gone global. Infections are mounting in Europe, South Korea, Iran, the United States, and elsewhere, with authorities implementing increasingly restrictive measures to contain the virus. Europe and Japan are likely already in recession territory given their weak fourth quarter performance and high reliance on trade. While the United States entered the crisis with a tailwind , some analysts are forecasting a contraction in U.S. GDP in the second quarter. Estimates of the global impact vary: early last week, the Organisation for Economic Co-operation and Development (OECD) predicted that Covid-19 will lower global GDP growth by one-half a percentage point for 2020 (from 2.9 to 2.4 percent); Bloomberg Economics warns that full-year GDP growth could fall to zero in a worst-case pandemic scenario.

Q2: What sectors and economies are most vulnerable?

A2: The Covid-19 outbreak has generated both demand and supply shocks reverberating across the global economy. Among major economies outside of China, the OECD forecasts the largest downward growth revisions in countries deeply interconnected to China, especially South Korea, Australia, and Japan. Major European economies will experience dislocations as the virus spreads and countries adopt restrictive responses that curb manufacturing activity at regional hubs, including in Northern Italy. As a result of depressed activity, the United Nations projects that foreign direct investment flows could fall between 5 and 15 percent to their lowest levels since the 2008-2009 global financial crisis.

At the sectoral level, tourism and travel-related industries will be among the hardest hit as authorities encourage “social distancing” and consumers stay indoors. The International Air Transport Association warns that Covid-19 could cost global air carriers between $63 billion and $113 billion in revenue in 2020, and the international film market could lose over $5 billion in lower box office sales. Similarly, shares of major hotel companies have plummeted in the last few weeks, and entertainment giants like Disney expect a significant blow to revenues. Restaurants, sporting events , and other services will also face significant disruption. Industries less reliant on high social interaction, such as agriculture, will be comparatively less vulnerable but will still face challenges as demand wavers.

Q3: What’s the relationship between the economy and the energy sector?

A3: Economic slowdowns generally lead to lower energy demand, and the fallout from Covid-19 has proved no different . Often, producers respond to demand slumps by cutting supply to buoy prices. Last week, members of the Organization of the Petroleum Exporting Countries (OPEC) and a few other major oil producers met to discuss an additional cut of 1.5 million barrels per day through the end of June in response to the outbreak. When the agreement collapsed, Saudi Arabia cut prices and lifted output , ostensibly to harm Russia for refusing to agree to production cuts . Following the Saudi decision, Brent Crude fell more than 20 percent , the sharpest one-day drop since 1991, with analysts predicting further declines ahead. The damage from the Saudi-Russian price war sends an unsettling signal to markets hungry for a coordinated policy response to the epidemic, especially considering Saudi Arabia’s current role as G20 president.

In response to the price shock, large oil producers, including U.S. firms, could pare back investment and production, with heavily indebted firms in particular at risk of layoffs, consolidations, and even bankruptcy . Investors are well aware that energy companies account for more than 11 percent of the U.S. high yield (below investment grade) market, with rollovers nearly impossible under current market conditions. In theory, lower oil prices should help oil-importing countries, but depressed activity due to Covid-19 could limit that benefit. In addition, the boom in domestic U.S. energy production in recent years means the United States is exposed to price declines in a way not seen in previous economic downturns.

Q4: How does the economic slowdown impact financial markets?

A4: Fears of a broader outbreak and its economic impact spread to financial markets last month, and most international indices are nearing bear market territory (declining at least 20 percent from the 52-week high) as investors process the lower corporate earnings that will result from the virus. The S&P 500 fell 7 percent to open the March 9 session, triggering a “ circuit breaker ” that briefly suspended trading for the first time since 1997. Overall, the index is down about 17 percent from its record high on February 19. Amid the equity rout, investors have fled to safe haven assets such as U.S. Treasury bonds, leading to record low yields . Low yields translate into low borrowing costs for the U.S. government, but low interest rates may not benefit private companies or individuals (or even all sovereigns) who may find financial markets too risk adverse to extend credit in light of such uncertainty. The longer the virus spreads, the more economic and company performance will be impacted, raising concerns about debt sustainability, especially for highly indebted countries and companies, absent official support.

Q5: How have governments responded to cushion the economic fallout from the epidemic?

A5: Thus far, national governments have announced largely uncoordinated, country-specific responses to the virus. In China, the epicenter of the outbreak, officials announced billions in special-purpose loans to companies facing liquidity constraints as well as financial support to specific sectors such as aviation. In the United States, the Federal Reserve cut the policy rate in an emergency action on March 3, and on March 9, in coordination with other U.S. bank regulators, it encouraged financial institutions to “meet the financial needs of customers and members affected by the coronavirus,” a move aimed at supporting financial conditions to prevent the growth shock from turning into a broader financial crisis. On March 9, the Federal Reserve Bank of New York also announced expanded overnight repurchase operations by $50 billion to avoid a deeper credit crunch.

The European Central Bank and Bank of England are expected to take action when their monetary policy committees meet later this month. On the fiscal front, President Trump previewed his administration’s plans to seek a payroll tax cut and assistance for impacted hourly workers and industries. Countries announcing fiscal measures just this month include Japan ($9.6 billion, or 0.19 percent of GDP), South Korea ($9.2 billion, 0.56 percent of GDP), and Italy ($4.1 billion, 0.20 percent of GDP). The adequacy of such spending will depend on the virus’s path as well as the effectiveness of other measures to contain negative spillovers from the growth shock.

In terms of coordinated action, on March 6, the G20 finance ministers and central bank governors pledged to take “appropriate” fiscal and monetary measures but made no specific commitments. On a March 3 phone call , G7 finance ministers reaffirmed their “commitment to use all policy tools” but did not outline specific steps. For their part, the International Monetary Fund and World Bank last week announced the availability of $50 billion and $12 billion in financing, respectively, to support low income and emerging market economies’ responses to the virus.

Scientists do not yet have a clear understanding of the virus’s behavior, transmission rate, and the full extent of contagion; uncertainty will be part of the backdrop for the foreseeable future. Coherent, coordinated, and credible policy responses provide the best chance at limiting the economic fallout from what is already and sadly a human tragedy.

Stephanie Segal is a senior fellow with the Simon Chair in Political Economy at the Center for Strategic and International Studies in Washington, D.C. Dylan Gerstel is a research assistant with the CSIS Simon Chair in Political Economy.

Critical Questions is produced by the Center for Strategic and International Studies (CSIS), a private, tax-exempt institution focusing on international public policy issues. Its research is nonpartisan and nonproprietary. CSIS does not take specific policy positions. Accordingly, all views, positions, and conclusions expressed in this publication should be understood to be solely those of the author(s).

Stephanie Segal

Dylan Gerstel

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Impact of the coronavirus pandemic on the global economy - Statistics & Facts

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• Basic Statistic Cumulative cases of COVID-19 worldwide from Jan. 22, 2020 to Jun. 13, 2023, by day
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Cumulative cases of COVID-19 worldwide from Jan. 22, 2020 to Jun. 13, 2023, by day

Number of cumulative cases of coronavirus (COVID-19) worldwide from January 22, 2020 to June 13, 2023, by day

COVID-19 cases worldwide as of May 2, 2023, by country or territory

Number of coronavirus (COVID-19) cases worldwide as of May 2, 2023, by country or territory

GDP loss due to COVID-19, by economy 2020

Share of Gross Domestic Product (GDP) lost as a result of the coronavirus pandemic (COVID-19) in 2020, by economy

Global real Gross Domestic Product (GDP) growth after the coronavirus (COVID-19) from 2019 with a forecast until 2024

Value of COVID-19 stimulus packages in the G20 as share of GDP 2021

Value of COVID-19 fiscal stimulus packages in G20 countries as of May 2021, as a share of GDP

Number of unemployed persons worldwide 1991-2024

Number of unemployed persons worldwide from 1991 to 2024 (in millions)

COVID-19: effect on income groups globally 2020

Change in number of people in selected income tiers due to the coronavirus (COVID-19) pandemic worldwide in 2020 (in millions)

Central bank policy rates in advanced and emerging economies 2019-2024

Central bank policy rates in major advanced and emerging economies from September 2019 to April 2024

Stock markets and COVID-19

• Premium Statistic Change in global stock index values during coronavirus outbreak 2020
• Basic Statistic Share price index in major developed and emerging economies 2019-2023
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Change in global stock index values during coronavirus outbreak 2020

Change in value during coronavirus outbreak of selected stock market indices worldwide from January 1 to March 18, 2020

Share price index in major developed and emerging economies 2019-2023

Share price index in major developed and emerging economies from January 2019 to June 2023

Monthly Shanghai Stock Exchange Composite Index performance 2018-2024

Monthly development of the Shanghai Stock Exchange Composite Index from March 2018 to March 2024

Coronavirus impact on the CAC 40 index in France 2020-2023

Impact of the coronavirus (COVID-19) outbreak on the CAC 40 index in France from January 24, 2020 to April 17, 2023

Weekly development DAX Index 2024

Weekly development of the DAX Index from January 2020 to April 2024

Weekly development Dow Jones Industrial Average Index 2020-2024

Weekly development of the Dow Jones Industrial Average Index from January 2020 to April 2024

Impact on major industries

• Basic Statistic Weekly flights change of global airlines due to COVID-19 as of January 2021
• Basic Statistic Weekly oil prices in Brent, OPEC basket, and WTI futures 2022-2024
• Premium Statistic Global PMI for manufacturing and new export orders 2018-2024
• Premium Statistic Global merchandise imports index 2019-2023, by region
• Premium Statistic Global merchandise exports index 2019-2023, by region
• Premium Statistic Industrial production growth worldwide 2019-2024, by region

Weekly flights change of global airlines due to COVID-19 as of January 2021

Year-on-year change of weekly flight frequency of global airlines from January 6, 2020 to January 4, 2021, by country

Weekly oil prices in Brent, OPEC basket, and WTI futures 2022-2024

Closing price of Brent, OPEC basket, and WTI crude oil at the beginning of each week from June 6, 2022 to June 3, 2024 (in U.S. dollars per barrel)

Global PMI for manufacturing and new export orders 2018-2024

Global Purchasing Manager Index (PMI) for manufacturing and new export orders from January 2018 to April 2024

Global merchandise imports index 2019-2023, by region

Global merchandise imports index between January 2019 to November 2023, by region

Global merchandise exports index 2019-2023, by region

Global merchandise exports index from January 2019 to November 2023, by region

Industrial production growth worldwide 2019-2024, by region

Global industrial production growth between January 2019 to February 2024, by region

Impact on trade and world's largest economies

• Premium Statistic GDP growth rate of the world's seven largest economies 2021, by country
• Premium Statistic Business confidence index among the world's seven largest economies 2020-2023
• Premium Statistic Change in GDP and trade volume globally 2007-2025
• Premium Statistic Monthly change in goods trade globally 2018-2024

GDP growth rate of the world's seven largest economies 2021, by country

GDP growth rate of the world's seven largest economies as of 3rd quarter of 2021, by country (compared to growth rate in 2020)

Business confidence index among the world's seven largest economies 2020-2023

Business confidence index (BCI) among the world's seven largest economies from January 2020 to August 2023*

Change in GDP and trade volume globally 2007-2025

Growth in GDP and trade volume worldwide from 2007 to 2025

Change in global goods trade volume from January 2018 to February 2024

Impact on Asia

• Basic Statistic GDP growth APAC 2018-2022, by sub-region
• Premium Statistic Projected GDP growth in China 2024
• Premium Statistic Cumulative number of workers to be fired due to COVID-19 Japan 2023, by industry
• Basic Statistic Estimated quarterly impact from COVID-19 on India's GDP FY 2020-2022
• Premium Statistic COVID-19 impact on unemployment rate in India 2020-2022
• Basic Statistic Estimated economic impact from COVID-19 in India 2020-21, by sector

GDP growth APAC 2018-2022, by sub-region

Gross domestic product (GDP) growth in Asia Pacific from 2018 to 2020 with forecasts to 2022, by sub-region

Median forecast for China's GDP growth rate in 2024 as of April 2024

Cumulative number of workers to be fired due to COVID-19 Japan 2023, by industry

Cumulative number of employees who are planned to be dismissed due to the coronavirus disease (COVID-19) impact in Japan as of March 2023

Estimated quarterly impact from COVID-19 on India's GDP FY 2020-2022

Estimated quarterly impact from the coronavirus (COVID-19) on India's GDP growth in financial year 2020 to 2022

COVID-19 impact on unemployment rate in India 2020-2022

Impact on unemployment rate due to the coronavirus (COVID-19) lockdown in India from January 2020 to May 2022

Estimated economic impact from COVID-19 in India 2020-21, by sector

Estimated impact from the coronavirus (COVID-19) on India from April 2020 to September 2021, by sector

Impact on Europe

• Premium Statistic GDP growth rate forecasts in European Union 2024
• Basic Statistic Market capital value of Europe's largest banks since the coronavirus 2019-2024
• Basic Statistic Market capitalizatio of European stock exchanges since Coronavirus outbreak 2019-2024
• Premium Statistic Impact of coronavirus (COVID-19) on real GDP in Italy 2021-2022
• Basic Statistic German export expectations for manufacturing 1991-2023
• Premium Statistic Coronavirus (COVID-19) impact on GDP growth in France 2020, by scenario
• Basic Statistic Impact of COVID-19 on GDP dynamics in CEE region 2020

GDP growth rate forecasts in European Union 2024

Gross domestic product growth rate forecasts in the European Union in 2024, by member state (percentage increase on previous period)

Market capital value of Europe's largest banks since the coronavirus 2019-2024

Monthly market capitalization of Europe's largest banks since the coronavirus from December 2019 to March 2024 (in billion U.S. dollars)

Market capitalizatio of European stock exchanges since Coronavirus outbreak 2019-2024

Monthly market capitalization of European stock exchanges since the Coronavirus outbreak between December 2019 and March 2024 (in billion U.S. dollars)

Impact of coronavirus (COVID-19) on real GDP in Italy 2021-2022

Impact of coronavirus (COVID-19) on real gross domestic product (GDP) growth in Italy in 2021 and 2022

German export expectations for manufacturing 1991-2023

Monthly balance values of the ifo export expectations for the German manufacturing sector from January 1991 to November 2023 (seasonally adjusted)

Coronavirus (COVID-19) impact on GDP growth in France 2020, by scenario

Forecasted impact of the novel coronavirus COVID-19 on real gross domestic product (GDP) growth in France from 2020, by scenario

Impact of COVID-19 on GDP dynamics in CEE region 2020

Negative impact of the coronavirus (COVID-19) epidemic on GDP dynamics in Central and Eastern European countries in 2020

Impact on the United States

• Basic Statistic U.S. real GDP growth by quarter Q1 2013- Q1 2024
• Basic Statistic U.S. unemployment insurance claims per week December 2022
• Basic Statistic U.S. seasonally adjusted unemployment rate 2022-2024
• Basic Statistic U.S. unemployment rate 2024, by industry and class of worker
• Basic Statistic U.S. monthly change in nonfarm payroll employment 2024, by industry
• Basic Statistic U.S. monthly change in chained inflation 2024-2024
• Premium Statistic Share of workers and businesses impacted by COVID-19 2020

U.S. real GDP growth by quarter Q1 2013- Q1 2024

Annualized growth of real GDP in the United States from the first quarter of 2013 to the first quarter of 2024

U.S. unemployment insurance claims per week December 2022

Number of initial unemployment insurance claims made per week in the United States from the beginning of the pandemic to December 2022 (in 1,000s)

U.S. seasonally adjusted unemployment rate 2022-2024

Monthly unemployment rate in the United States from April 2022 to April 2024 (seasonally-adjusted)

U.S. unemployment rate 2024, by industry and class of worker

Unemployment rate in the United States in April 2024, by industry and class of worker

U.S. monthly change in nonfarm payroll employment 2024, by industry

Monthly change in nonfarm payroll employment in the United States in April 2024, by industry sector (in 1,000s)

U.S. monthly change in chained inflation 2024-2024

Monthly change in the chained inflation rate in the United States from March 2024 to March 2024

Share of workers and businesses impacted by COVID-19 2020

Share of workers and businesses impacted by the COVID-19 outbreak on in the United States as of March 24, 2020, by effect

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COVID-19 and Its Global Economic Impact

Affiliations.

• 1 Universal Scientific Education and Research Network (USERN), Tehran, Iran.
• 2 Fondazione Bruno Kessler, Povo, Italy.
• 3 Universal Scientific Education and Research Network (USERN), Povo, Italy.
• 4 University of Miami, Coral Gables, FL, USA.
• 5 Universal Scientific Education and Research Network (USERN), Miami, FL, USA.
• 6 Department of Applied Science and Technology, Politecnico di Torino, Turin, Italy.
• 7 Universal Scientific Education and Research Network (USERN), Turin, Italy.
• 8 University of Waterloo, Waterloo, Canada.
• 9 Universal Scientific Education and Research Network (USERN), Waterloo, Canada.
• 10 Queen Mary, University of London, London, UK.
• 11 University of Pavia, Pavia, Italy.
• 12 Universal Scientific Education and Research Network (USERN), Pavia, Italy.
• 13 Michigan State University, East Lansing, MI, USA.
• 14 Universal Scientific Education and Research Network (USERN), East Lansing, MI, USA.
• 15 Universal Scientific Education and Research Network (USERN), Tehran, Iran. [email protected].
• 16 Research Center for Immunodeficiencies, Children's Medical Center, Tehran University of Medical Sciences, Tehran, Iran. [email protected].
• PMID: 33973214
• DOI: 10.1007/978-3-030-63761-3_46

Pandemics are enormous threats to the world that impact all aspects of our lives, especially the global economy. The COVID-19 pandemic has emerged since December 2019 and has affected the global economy in many ways. As the world becomes more interconnected, the economic impacts of the pandemic become more serious. In addition to increased health expenditures and reduced labor force, the pandemic has hit the supply and demand chain massively and caused trouble for manufacturers who have to fire some of their employees or delay their economic activities to prevent more loss. With the closure of manufacturers and companies and reduced travel rates, usage of oil after the beginning of the pandemic has decreased significantly that was unprecedented in the last 30 years. The mining industry is a critical sector in several developing countries, and the COVID-19 pandemic has hit this industry too. Also, world stock markets declined as investors started to become concerned about the economic impacts of the COVID-19 pandemic. The tourism industry and airlines have also experienced an enormous loss too. The GDP has reduced, and this pandemic will cost the world more than 2 trillion at the end of 2020.

Keywords: COVID-19; Economic impacts; Global economy; Market; Oil; Pandemic.

• Pandemics* / prevention & control

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• Wiley - PMC COVID-19 Collection

The COVID‐19 Pandemic and Its Impact on the Global Economy: What Does It Take to Turn Crisis into Opportunity?

Ligang song.

1 Professor, Arndt‐Corden Department of Economics, Crawford School of Public Policy, Australian National University, Australia

Yixiao Zhou

2 Senior Lecturer, Arndt‐Corden Department of Economics, Crawford School of Public Policy, Australian National University, Australia

The COVID‐19 pandemic broke out at a time when there were heightened uncertainties in the global economy. Understanding these uncertainties provides an important background for analyzing the impact of the pandemic on the global economy, assessing the effectiveness of policy measures in combating the pandemic and reviving the global economy, and predicting the trajectory of the economic recovery in the post‐pandemic era. We analyze how COVID‐19 would likely deepen an existing malaise in the global economy, and what could be done to address these problems while managing the economic recovery. We argue that three fundamental factors that could lead to a solid recovery in the post pandemic era are structural reform, new technology and re‐integration. They could be managed by instituting a new “global social contract.” Supported by strong public policies at all levels, especially at national level, these three factors could bring about the salvation of the global economy as it recovers or re‐emerges from the pandemic crisis.

Contributor Information

Ligang Song, Email: [email protected] .

Yixiao Zhou, Email: [email protected] .

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What to know about the report on America’s COVID-hit GDP

Some of the deepest contractions on record. Image:  REUTERS/Keith Bedford

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Stay up to date:, united states.

• The COVID-19 pandemic has caused the biggest blow to the US economy since the Great Depression.
• GDP fell at a 32.9% annualized rate, the deepest decline since records began back in 1947.
• 30.2 million Americans were receiving unemployment checks in the week ending July 11.

The U.S. economy suffered its biggest blow since the Great Depression in the second quarter as the COVID-19 pandemic shattered consumer and business spending, and a nascent recovery is under threat from a resurgence in new cases of coronavirus.

The bulk of the deepest contraction in at least 73 years reported by the Commerce Department on 30th July occurred in April when activity almost ground to an abrupt halt after restaurants, bars and factories among others were shuttered in mid-March to slow the spread of coronavirus.

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More than five years of growth have been wiped out. With the recovery faltering, pressure is mounting for the White House and Congress to agree on a second stimulus package. President Donald Trump, who is trailing Democratic challenger and former Vice President Joe Biden in opinion polls, said on Wednesday he was in no hurry. Trump on 30th of July raised the possibility of delaying the Nov. 3 presidential election.

“This is hard to swallow,” said Jason Reed, finance professor at the University of Notre Dame’s Mendoza College of Business. “Right now, the American economy is speeding toward a fiscal cliff. Not only do we need Americans to take serious action preventing the spread of the disease, but we also need Congress to agree on another stimulus package and quickly.”

Gross domestic product collapsed at a 32.9% annualized rate last quarter, the deepest decline in output since the government started keeping records in 1947. The drop in GDP was more than triple the previous all-time decline of 10% in the second quarter of 1958. The economy contracted at a 5.0% pace in the first quarter. It fell into recession in February.

Economists polled by Reuters had forecast GDP slumping at a 34.1% rate in the April-June quarter.

On a year-on-year basis GDP fell a record 9.5% last quarter. Output shrank 10.6% in the first half. The level of GDP has dropped to levels last seen in the last quarter of 2014.

Though activity picked up starting in May, momentum has slowed amid the explosion of COVID-19 infections, especially in the densely populated South and West regions where authorities in hard-hit areas are closing businesses again and pausing reopenings. That has tempered hopes of a sharp rebound in growth in the third quarter.

Federal Reserve Chair Jerome Powell on Wednesday acknowledged the slowdown in activity. The U.S. central bank kept interest rates near zero and pledged to continue pumping money into the economy.

Trump’s campaign shrugged off the GDP slump, saying the economy was “rebounding.” Biden blamed a leadership “failure,” and urged “a massive public health response to save lives and get our economy back up to speed.” Stocks on Wall Street fell. The dollar dipped against a basket of currencies. U.S. Treasury prices rose.

Broad historic declines

Economists say without the historic fiscal package of nearly $3 trillion, the economic contraction would have been deeper. The package offered companies help paying wages and gave millions of unemployed Americans a weekly $600 supplement, which expires on Friday. Many companies have exhausted their loans.

This, together with the sky-rocketing coronavirus infections is keeping layoffs elevated. In a separate report on Thursday, the Labor Department said initial claims for unemployment benefits increased 12,000 to a seasonally adjusted 1.434 million in the week ending July 25. A staggering 30.2 million Americans were receiving unemployment checks in the week ending July 11.

“Tens of millions of workers have lost their jobs over the past few months and remain unemployed, and the pace of improvement in the labor market has slowed,” said Gus Faucher, chief economist at PNC Financial in Pittsburgh.

“These $600 payments are adding about $75 billion per month to household income, at a time when income from work has plummeted. The loss of huge amounts of unemployment income in the near term would be a significant drag on consumer spending.”

There have been claims, mostly from Republicans, that the generous jobless benefits are discouraging some of the unemployed from looking for work. The GDP report showed income at the disposal of households surged $1.53 trillion in the second quarter compared to an increase of $157.8 billion in the January-March period.

A significant portion of the income was stashed away, boosting savings to $4.69 trillion from $1.59 trillion in the first quarter. Consumer spending, which accounts for more than two-thirds of the U.S. economy, plunged at a 34.6% pace last quarter.

Business investment tumbled at a 27% rate. It was pulled down by spending on equipment, which collapsed at a 37.7% rate. Investment is equipment has now contracted for five straight quarters. Boeing reported a bigger-than-expected quarterly loss on Wednesday and slashed production on its widebody programs.

The pandemic has also crushed oil prices, leading to deep cuts in shale oil production and layoffs. Spending on nonresidential structures such as mining exploration, shafts and wells plunged at a record 34.9% rate.

Investment in homebuilding tumbled at a 38.7% rate. Government spending rose, though state and local government outlays fell. Trade added to GDP, but inventories were a drag.

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Eduardo levy yeyati and eduardo levy yeyati former nonresident senior fellow - global economy and development @eduardoyeyati federico filippini federico filippini visiting professor - universidad torcuato di tella @efefilippini.

June 8, 2021

Introduction

The impact of the pandemic on world GDP growth is massive. The COVID-19 global recession is the deepest since the end of World War II (Figure 1). The global economy contracted by 3.5 percent in 2020 according to the April 2021 World Economic Outlook Report published by the IMF, a 7 percent loss relative to the 3.4 percent growth forecast back in October 2019. While virtually every country covered by the IMF posted negative growth in 2020 (IMF 2020b), the downturn was more pronounced in the poorest parts of the world (Noy et al. 2020) (Figure 2).

The impact of the shock is likely to be long-lasting. While the global economy is expected to recover this year, the level of GDP at the end of 2021 in both advanced and emerging market and developing economies (EMDE) is projected to remain below the pre-virus baseline (Figure 3). As with the immediate impact, the magnitude of the medium-term cost also varies significantly across countries, with EMDE suffering the greatest loss. The IMF (2021) projects that in 2024 the World GDP will be 3 percent (6 percent for low-income countries (LICs)) below the no-COVID scenario. Along the same lines, Djiofack et al. (2020) estimate that African GDP would be permanently 1 percent to 4 percent lower than in the pre-COVID outlook, depending on the duration of the crisis.  

The pandemic triggered a health and fiscal response unprecedented in terms of speed and magnitude. At a global scale, the fiscal support reached nearly $16 trillion (around 15 percent of global GDP) in 2020. However, the capacity of countries to implement such measures varied significantly. In this note, we identify three important preexisting conditions that amplified the impact of the shock:

• Fiscal space: The capacity to support household and firms largely depends on access to international financial markets,
• State capacity: Fast and efficient implementation of policies to support household and firms requires a substantial state capacity and well-developed tax and transfer infrastructure; and
• Labor market structure: A large share of informal workers facing significant frictions to adopt remote working, and high levels of poverty and inequality, deepen the deleterious impact of the crisis.

Additionally, the speed and the strength of the recovery will be crucially dependent on the capacity of the governments to acquire and roll out the COVID-19 vaccines.

This paper presents a succinct summary of the existing economic literature on the economic and fiscal impact of the pandemic, and a preliminary estimate of the associated economic cost. It documents the incidence of initial conditions (with a particular focus on the role of the labor market channel) on the transmission of the shock and the speed and extent of the expected recovery, summarizes how countries attempted to attenuate the economic consequences and the international financial institutions assisted countries, reports preliminary accounts of medium-term COVID-related losses, and concludes with some forward-looking considerations based on the lessons learned in 2020.

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Kentucky tourism continues record-setting pace in 2023 with nearly $14 billion in economic impact

FILE - Tourists stand in the rotunda area of Mammoth Cave in Mammoth Cave National Park, Ky., on Aug. 3, 2011. Kentucky’s tourism industry stayed on its record-setting pace in 2023, generating an economic impact approaching $14 billion while sustaining nearly 100,000 jobs, Gov. Andy Beshear said Thursday, May 30, 2024. (AP Photo/Ed Reinke, File)

FILE - In this March 23, 2015 file photo, a 120-foot-tall replica bat fronts the Louisville Slugger Museum and Factory in Louisville, Ky. Kentucky’s tourism industry stayed on its record-setting pace in 2023, generating an economic impact approaching $14 billion while sustaining nearly 100,000 jobs, Gov. Andy Beshear said Thursday, May 30, 2024. (AP Photo/Timothy D. Easley, File)

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FRANKFORT, Ky. (AP) — Kentucky’s tourism industry stayed on its record-setting pace in 2023, generating an economic impact approaching $14 billion while sustaining nearly 100,000 jobs, Gov. Andy Beshear said Thursday.

Travelers visiting the Bluegrass State last year spent $9.7 billion as tourism continued its post-pandemic momentum as a key contributor to Kentucky’s growing economy, the Democratic governor said.

“We’re welcoming people to our new Kentucky home, one filled with opportunity and prosperity,” Beshear said during his weekly news conference. “Where we want you to come see what we have to offer, and then we want you to move your family here to be a part of it.”

The governor joined tourism leaders at Castle & Key Distillery to celebrate the second straight record-breaking year for tourism in Kentucky. In 2022, the tourism sector bounced back from the COVID-19 pandemic to generate an economic impact of nearly $13 billion and was responsible for 91,668 jobs.

Last year was even better, with the statewide tourism industry producing $13.8 billion in economic impact and the sector sustained 95,222 jobs, Beshear said. The study by Tourism Economics determined that 79.3 million travelers visited Kentucky in 2023, up 4.5% from the prior year, he said.

Kentucky’s attractions include horse farms and bourbon distilleries as well as outdoor adventure, history, arts and cultural draws. Kentucky is also home to Mammoth Cave National Park.

Bourbon tourism is flourishing, with attendance surpassing 2.5 million visitors last year along the Kentucky Bourbon Trail and the Kentucky Bourbon Trail Craft Tour, which showcases smaller distilleries. Bourbon tourists tend to spend more and stay longer compared to other attractions, the bourbon industry says.

“With distilleries now in 42 counties, bourbon tourism is resurrecting Main Streets across the commonwealth and pouring much-needed revenue into local coffers. And there’s more to come,” said Eric Gregory, president of the Kentucky Distillers’ Association.

Spirit makers have invested big sums into new or expanded visitor centers to play up the industry’s heritage and allow guests to soak in the sights and smells of bourbon-making.

Communities across Kentucky registered robust tourism numbers last year.

Beshear said tourism generated $4.2 billion of economic impact last year in Jefferson County, which includes Louisville, the state’s largest city. In Boone, Campbell and Kenton counties — just south of Cincinnati — the combined economic impact of tourism was $2.1 billion, he said. It was $1.6 billion in Fayette County, home to Lexington, the state’s second-largest city. In Warren County, tourism brought in $477 million of economic impact, and in McCracken County it generated $319 million.

State Tourism Commissioner Mike Mangeot thanked tourism officials statewide for their role in the sector’s success, along with the thousands of leisure and hospitality industry workers. The tour guides, restaurant workers, hotel desk clerks and others are “the frontline ambassadors,” he said.