(Repeats Feb. 20 column with no changes. The opinions expressed here are those of the author, a columnist for Reuters)
* Fed Bulletin references (1): tmsnrt.rs/2SIo6Sm
* Fed Bulletin references (2): tmsnrt.rs/2HHGrsu
LONDON, Feb 20 (Reuters) - Epidemics normally have a severe but relatively short-lived impact on economic activity, with the impact on manufacturing and consumption measured in weeks or at worst a few months.
Even pandemics such as the Black Death (1348/49), Spanish influenza (1918/19), Asian influenza (1957/58) and Hong Kong influenza (1968/69) that caused large numbers of deaths had a brief impact on the economy.
China’s coronavirus outbreak should conform to this pattern of a severe downturn followed by swift recovery, provided it does not initiate a broader cyclical slowdown in the already-fragile global economy.
Oil traders are anticipating a deep but short-lived drop in consumption, with the impact concentrated in the first three months of the year and gradually fading in the second and third quarters.
Before modern medicine, the Black Death is estimated have killed between a third and a half of the population of England, and as many as 60 million people worldwide, making it the most lethal single epidemic in history.
The Black Death has become the archetype lethal pandemic, spreading from country to country, and community to community, rapidly killing millions, including many otherwise healthy young adults.
Plague returned periodically to England for the next 150 years, with severe outbreaks in 1361 (“pestis secunda”) and 1368 (“pestis tertia”), and smaller national or local outbreaks in most decades until the early 1500s.
England’s population plunged from around 4.5-6.0 million in 1348 to as little as 2.0-2.5 million a century later and did not fully recover for three or four centuries, according to estimates by historians and demographers.
Following the plagues, England’s economy entered a long agricultural and commercial depression towards the end of the 1300s that lasted through the 1400s, which some scholars blame on depopulation.
In the immediate aftermath of the Black Death, however, the economy seems to have bounced back remarkably quickly given the catastrophic death toll, according to the historian John Hatcher.
“The immense loss of life in the plagues inevitably caused disruption and setbacks in production, but in the greater part these appear to have been short-lived” (“Plague, population and the English economy”, Hatcher, 1977).
“One of the most striking features of the thirty and more years following 1348 was the resilience that the agrarian economy displayed in the face of recurrent plague,” Hatcher observed.
For the most part, agricultural rents and revenues as well as consumption of major commodities rapidly returned to pre-plague levels, and only began to decline from the 1380s or 1390s.
In more recent times, the outbreak of influenza in 1918/19 is estimated to have killed 675,000 people in the United States and 50 million worldwide, making it the second most deadly epidemic after the Black Death.
The influenza epidemic came in three distinct waves, in the summer and autumn of 1918 and again in early 1919 (“Report on the pandemic influenza 1918-19”, UK Ministry of Health, 1920).
But economic impact in the United States, Britain and many other countries, was very short term and dwarfed by the transition from wartime production to a civilian economy as World War One ended.
In the United States, business conditions were chronicled in the monthly bulletins of the Federal Reserve System, which included a survey regional economic conditions in each of the 12 Federal Reserve districts.
The bulletin made no references at all to influenza for the first 10 months of 1918, then references surge to 17 in November and 23 in December, before falling to just 2 in January and largely disappearing thereafter.
Most of the influenza references in the November and December bulletins are to evidence from business surveys conducted by each of the 12 Federal Reserve Banks in October and November (tmsnrt.rs/2SIo6Sm).
In November, the Federal Reserve Bank of Boston warned: “The epidemic of influenza which has prevailed during the past month has seriously interfered with business. Production of all kinds has been restricted.”
“Retailers in large centers have had a material falling off in business, while those serving small local trade have to a considerable extent reaped benefits. Conditions are, however, rapidly returning to normal.”
In the Philadelphia District, “retail trade shows a large increase during the month up to the beginning of the influenza epidemic. Since that time, however, the number of customers daily visiting the stores has decreased about one-third and the volume of sales from 30 to 50 percent.”
“Working forces of all business establishments, too, have been affected very much at times, as many as one-third of the employees having been unfit for duty.”
Coal production was hit especially hard, with some collieries being forced to close because so many miners were sick (tmsnrt.rs/2HHGrsu).
In the St Louis District, “the influenza epidemic, and the measures taken to combat it, have had a disturbing effect on certain branches of business ... Theaters, schools, churches, and other meeting places have been closed entirely, and some of the large stores have been compelled to open later and close earlier than usual.”
“This has especially handicapped retail trade, though other lines have also been affected. Some activities have suffered considerably on account of the depletion of their working forces through contraction of the disease.”
Just a month later, however, most Federal Reserve Banks were already reporting business conditions were returning to normal in the December bulletin.
In the St Louis District, “the influenza epidemic is on the decline ... and the bans placed on business to combat it, in most instances, have been lifted. Department stores, theaters, etc, are now operating as usual, and schools, churches, lodges, etc, are again open. This has materially helped the retail trade.”
In the Richmond District, “the subsidence of the prevalent influenza permitted the reopening of churches, schools, and other places of gathering.”
“Manufacturing continues active with the prevailing restriction of supplies and labor. The effects of the influenza are passing and mills are resuming more normal operations.”
The precise economic impact of the epidemic of 1918/19 is hard to isolate because it coincided with the end of wartime production and the transition to a post-war civilian economy.
But there are no signs of lasting disruption: a pandemic that killed 50 million people worldwide has left almost no trace in the economic record.
Further influenza pandemics were reported in 1957/58 and 1968/69 but in both cases the number of extra deaths was low and there was no discernible economic impact.
More recently, the outbreak of severe acute respiratory syndrome (SARS) in 2003, caused only a brief interruption in economic activity and oil consumption.
In most cases, the main impact on the economy has come from public health measures, such as quarantines, isolation and business closures, intended to control the spread of disease, rather than from the disease itself.
As a result, policymakers face a difficult trade-off between stringent public health measures to contain the epidemic and the need to resume normal business and social activities as soon as possible.
Over time, policymakers, business owners and employees face increasing pressure to resume near-normal operations, while taking practical steps to reduce if not eliminate transmission risk.
China’s government is trying to encourage a gradual normalization of business activity and transport in the rest of the country outside Hubei, the province at the centre of the outbreak.
If the past is any guide, economic activity and oil consumption should return to normal over the next 3-6 months, which is why Brent prices and calendar spreads have been progressively strengthening over the last 10 days.
The main remaining risk is that the short-term economic shock from coronavirus could push the global economy, which was only just recovering from the trade war of 2018/19, into a full-blown cyclical downturn.
- Oil prices bounce on hope for short coronavirus downturn (Reuters, Feb. 17)
- Falling air freight points to renewed global economic slowdown (Reuters, Feb. 13)
- Coronavirus and the impact on oil consumption (Reuters, Feb. 5) (Editing by David Evans)
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