The profound humanitarian fallout of the COVID-19 crisis carries with it the potential equally disruptive economic fallout. The path ahead is hence a precarious one, driven by epidemiological uncertainty, the unique blend of resulting shocks to both supply and demand, and “preexisting conditions” in the global macroeconomy.
At this writing, Europe has become the prime epicenter of the crisis, with nearly 75 percent of new cases reported globally on March 18th (Exhibit 1). In Italy, years of low growth and high government debt are colliding with the rapid spread of the disease in an elderly population. Spain and France, face similar prospects, as do many countries in Asia. Thailand, for example, is similarly reliant on exports and tourism receipts and already has one of the highest debt burdens in the region at around 75 percent GDP. The particular characteristics of the US economy may make it susceptible to the impacts of COVID-19, despite its general strength before the virus’ arrival. A high number of households and businesses are vulnerable to the impact of disease-containment measures, because of their high-debt burden.