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Macroeconomic Aspects of the Coronavirus Epidemic: Eurozone, EU, US and Chinese Perspectives

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  • Paul J.J. Welfens

    (Europäisches Institut für Internationale Wirtschaftsbeziehungen (EIIW))

Abstract

The Corona Virus (COVID-19) epidemic represents a major challenge for the world economy. While a detailed longer-term diffusion path of the new virus cannot be anticipated for individual countries, with the possible exception of China, which was the starting point of the international epidemic, one should expect falling asset prices in Asia, the United States and the European Union plus the United Kingdom - except for the price of risk-free government bonds. In the course of 2020/21 the US, the EU and the UK, as well as other countries, will face both an increasing number of infected patients as well as a higher case fatality ratio. Health care expenditures in the US will increase more than in the Eurozone and the EU in the medium term, a development that undermines the international competitiveness of the United States. In the US, the spread of the COVID-19 could raise the ratio of health expenditures relative to GDP beyond the current 18% while the health care expenditure of Western EU countries will not rise much beyond the current 10% (12% in France, 11% in Germany in 2018). To the extent that morbidity and mortality in industrialized countries is a positive function of age, higher health expenditures for patients above 65 years of age should be anticipated; in the US with considerable higher government health expenditures. Hence, the US deficit-GDP ratio will remain high. A rising health care-GDP ratio in the US is equivalent to a rising US export tariff; already in the current situation - prior to 2020 - the transatlantic differential in health care-GDP ratios implies that Western European countries will face a relative cost advantage in the context of the Corona virus epidemic so that the trade balance surplus of the Eurozone could rise unless supply-side shocks in the EU exceed those of the US. The COVID-19 challenge for the US Trump Administration is a serious one, since the lack of experts in the Administration will become more apparent in such a systemic stress situation - and this might well affect the November 2020 US presidential election which, in turn, would itself have considerable impacts on the UK and the EU27 as well as EU-UK trade negotiations.

Suggested Citation

  • Paul J.J. Welfens, 2020. "Macroeconomic Aspects of the Coronavirus Epidemic: Eurozone, EU, US and Chinese Perspectives," EIIW Discussion paper disbei270, Universitätsbibliothek Wuppertal, University Library.
    • Handle: RePEc:bwu:eiiwdp:disbei270
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    References listed on IDEAS

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    1. Paul J. J. Welfens & Fabian J. Baier, 2018. "BREXIT and Foreign Direct Investment: Key Issues and New Empirical Findings," IJFS, MDPI, vol. 6(2), pages 1-21, April.
    2. Lars Jonung & Werner Roeger, 2006. "The macroeconomic effects of a pandemic in Europe - A model-based assessment," European Economy - Economic Papers 2008 - 2015 251, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
    3. Joseph Abadi & Markus Brunnermeier & Yann Koby, 2023. "The Reversal Interest Rate," American Economic Review, American Economic Association, vol. 113(8), pages 2084-2120, August.
    4. Andre Jungmittag & Paul J. J. Welfens, 2020. "EU-US trade post-trump perspectives: TTIP aspects related to foreign direct investment and innovation," International Economics and Economic Policy, Springer, vol. 17(1), pages 259-294, February.
    5. Clive Bell & Maureen Lewis, 2004. "The Economic Implications of Epidemics Old and New," World Economics, World Economics, 1 Ivory Square, Plantation Wharf, London, United Kingdom, SW11 3UE, vol. 5(4), pages 137-174, October.
    6. Paul Welfens & Tony Irawan, 2014. "Transatlantic trade and investment partnership: sectoral and macroeconomic perspectives for Germany, the EU and the US," International Economics and Economic Policy, Springer, vol. 11(3), pages 293-328, September.
    7. Samir Kadiric & Arthur Korus, 2019. "The effects of Brexit on credit spreads: Evidence from UK and Eurozone corporate bond markets," International Economics and Economic Policy, Springer, vol. 16(1), pages 65-102, March.
    8. Paul J. J. Welfens, 2019. "The Global Trump," Springer Books, Springer, number 978-3-030-21784-6, December.
    9. Paul J.J. Welfens, 2011. "Innovations in Macroeconomics," Springer Books, Springer, number 978-3-642-11909-5, December.
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    Cited by:

    1. Del Chiappa, Giacomo & Bregoli, Ilenia & Fotiadis, Anestis K., 2021. "The impact of COVID-19 on Italian accommodation: A supply-perspective," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, vol. 7(1), pages 13-22.
    2. Klona, Maria, 2021. "The Days After COVID-19: A Meta-Analysis on the Impact of Epidemics and Pandemics on Long-Term Macro-Economic Performance," American Business Review, Pompea College of Business, University of New Haven, vol. 24(1), pages 188-224, May.
    3. Matos, Paulo & Costa, Antonio & da Silva, Cristiano, 2021. "COVID-19, stock market and sectoral contagion in US: a time-frequency analysis," Research in International Business and Finance, Elsevier, vol. 57(C).
    4. Reena Marwah & Sanika Sulochani Ramanayake, 2021. "Pandemic-Led Disruptions in Asia: Tracing the Early Economic Impacts on Sri Lanka and Thailand," South Asian Survey, , vol. 28(1), pages 172-198, March.
    5. Fotiadis, Anestis & Polyzos, Stathis & Huan, Tzung-Cheng T.C., 2021. "The good, the bad and the ugly on COVID-19 tourism recovery," Annals of Tourism Research, Elsevier, vol. 87(C).
    6. Hanns de la Fuente-Mella & Rolando Rubilar & Karime Chahuán-Jiménez & Víctor Leiva, 2021. "Modeling COVID-19 Cases Statistically and Evaluating Their Effect on the Economy of Countries," Mathematics, MDPI, vol. 9(13), pages 1-13, July.
    7. Lucie Plzáková & Egon Smeral, 2022. "Impact of the COVID-19 crisis on European tourism," Tourism Economics, , vol. 28(1), pages 91-109, February.

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    More about this item

    Keywords

    Coronavirus; Health System; Macroeconomics; EU; US; China;
    All these keywords.

    JEL classification:

    • I11 - Health, Education, and Welfare - - Health - - - Analysis of Health Care Markets
    • I18 - Health, Education, and Welfare - - Health - - - Government Policy; Regulation; Public Health
    • F01 - International Economics - - General - - - Global Outlook
    • H51 - Public Economics - - National Government Expenditures and Related Policies - - - Government Expenditures and Health

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