2020 Prediction: COVID-19 will suck like 9/11

This is the first of two 2020 predictions concerning COVID-19, the so-called coronavirus. This column will cover short-term impacts while my next column will cover longer-term changes that were probably going to happen anyway but are already being accelerated by the current health crisis.

NOT business as usual"

No, I'm not a doctor or an epidemiologist, but I'm also not an idiot. And as a non-idiot, I can confidently predict the significant short-term economic, social, and political impacts of COVID-19 on my global readership. The far more significant longer-term effects will be covered in my next column. Short-term, COVID-19 feels remarkably like 9/11, which wasn't a health crisis in any sense, but it was an abrupt disruption in everyday life for Americans. Except in the case of COVID-19, it's like 9/11 for the entire developed world.

For readers who are too young to remember 9/11 or weren't affected by it, the destruction of the twin towers in New York and the attack on the Pentagon in Northern Virginia led to an instant end to air travel in the USA. Travelers were stranded and had to find a different way home, renting cars or taking trains or buses instead of airplanes. The airlines were devastated. Even more importantly, business travel - and business events - were crushed for many months.

At the time of 9/11, I was making my living primarily through public speaking, doing an average of two business events per month. I was also working with a startup called Round One, founded by my friend Jamie Cohan, brother of business journalist William Cohan. The prospects for Round One were great on 9/10, but by 9/12 Round One was out of business because the startup's primary funder was the company that insured the World Trade Center.

The 9/11 crisis led to hundreds of large business events being canceled in the USA. I went from speaking twice per month to twice per year - an 85 percent reduction in my speaking income.

We were already in a recession caused by the Dot-Com economic bubble bursting in March 2001, but 9/11 was definitely an extra hit to any travel-related businesses or activities. The 2001 recession lasted for two years and economists say it was extended by at least two months due to the terrorist effects.

Then, just as we were finally recovering from the combined Dot-Com-9/11 recession, along came the SARS crisis - another coronavirus that provides useful data for predicting the impact of COVID-19. SARS was more deadly than COVID-19, but affected far fewer people (more deadly but less infectious), leading to only 774 global deaths - far less than the 2,810 COVID-19 deaths as of this morning.

What SARS teaches us"

The economic impact of the SARS epidemic was estimated at $54 billion, mainly in 2003, which was just a negative blip in global GDP at a time when the world was mainly coming out of recession.

SARS and 9/11 history suggest that the direct economic impact of COVID-19 will probably last one or two years. The Chinese economy is right now four times the size it was in 2003 and the world manufacturing economy is much more highly integrated and dependent on China, so the impact of COVID-19 will likely dwarf that of SARS. Where SARS cost $54 billion, COVID-19 will likely cost at least $1 trillion before it is finished, which sounds like a lot but is actually relatively modest for a $90 trillion global economy. Expect a one percent cut in global GDP growth.

There may not be a recession at all in the United States, because this is a Presidential election year and President Trump will likely do anything and everything he can to goose the economy to ensure his re-election. It's going to get crazy.

So there will be economic impacts, mitigated by extreme (possibly even illegal) coping strategies that will, in turn, lead to further economic impacts afterthe election.

If there isn't a recession in 2020, there absolutely will be one in 2021.

The last U.S. President who beat pre-election economic performance out of the Federal Reserve to ensure his re-election was Richard Nixon back when Arthur Burns was Fed chairman. That ill-advised gambit is generally held responsible by economists for the bear market in stocks that lasted for most of the 1970s.

But first there was the Spanish Flu"

The Mac Daddy of pandemics was the Spanish Flu from 1918-1920, which killed 40 million people worldwide. Three percent of the world's population died of flu in those three years. The mortality rate of COVID-19 and the Spanish Flu seem to be about the same (half that of SARS), but pretty much nothing was done to combat Spanish Flu, while today we have a century of epidemiological progress and an ability to create vaccines that simply didn't exist back then. So the global health impact of COVID-19 is likely to be much less than that of the Spanish Flu.

But the global economicimpact of COVID-19 may be greater. The Spanish Flu actually lead to an increasein per capita income in the 1920s, mainly caused by a reduced labor supply. With automation today that's likely not to be the case with this economic crisis. More on this in my next column.

So 2020 will not be a good year for airlines, hotels, cruises, and large business meetings, but these economic effects will be mitigated somewhat by heroic/insane government efforts in the USA.

Digital Branding
Web DesignMarketing