The world has experienced different pandemics across its history. Among the pandemic is H1N1 that began in the US in 2009 before spreading to the rest of the world. The pandemic had both positive and negative economic effects. The positive effects included advances in medical research and investment from reduced consumption and increased saving. The pandemic, however, caused losses of workdays, economic loss, and a negative impact on the national and global GDP. For the construction industry, while the savings meant more investment in projects after the pandemic, the industry experienced a 0.9 percentage decrease in investment in the sector. Currently, the world faces another pandemic in COVID-19. Estimates indicate a possible reduction of 0.1-0.2 percentage points in GDP growth, in addition to lost workdays, and delays in supply chains across the world.
Across history, the world has experience pandemics, some stretching to as far as the prehistoric period. From the American plagues of the 1600s to the American polio epidemic of early 1900, most recently the swine flu (H1N1) and the current COVID-19 epidemic, pandemics are not unknown to humans. Often, pandemics are associated with their negative impacts causing untold suffering and deaths, in addition to a negative economic impact. Even as epidemics cause these negative impacts, industry impacts vary. The construction industry, one that relies on human interaction and operations, is probably one of the most affected. Even with their negative impacts, epidemics have a silver lining, whereas, while they may cause negative economic impact, they sometimes drive innovation across different industries with positive economic benefits. The H1N1 is one such pandemic that had both positive and negative impacts on the general economy, and the construction industry in particular.
At its emergence, H1N1 was a shock to the world. According to the CDC (2019), H1N1 emerged in the US and quickly spread to the rest of the world. The shocking nature of the virus was the fact that it had a unique combination of influenza genes previously unidentified in humans or animals. An additional shock to the world about the new strain was that it mostly affected the young, most of whom had not developed any immunity against the virus. The virus, therefore, affected the young since most of the elderly 60 years and above had developed antibodies against it. Designated as (H1N1) pdm09, normal vaccines against the family of H1N1 were not effective in protecting against the new strain. By the time the monovalent (H1N1) pdm09 vaccine was developed, the disease had spread and between April 2009 and April 2010, there were an estimated 60.8 million cases, with about 300,000 hospitalizations, and 12, 469 deaths in the United States from the virus (CDC, 2019). Worldwide, between 151,700 and 575,400 died from the virus infection in its first year of circulation, even as 80 percent of those deaths were of people younger than 65 years (CDC, 2019). The age affected, therefore, shocked the world, given that typical influenza epidemics often affected the elderly, where 70-90 percent of the cases and death are of individuals above 65 years.
Even though pandemics cause widespread deaths and panics, they have some positive economic impact. One such positive economic impact is in research, particularly in medicine, where advances in research, technology, and training in human capital produces economic benefits. At the outbreak of the disease, the government spent $708 million on drugs and research (Frangoul, 2014). Such spending has a positive impact on the economy as it boosts later technological and medical advances, which would have a positive impact on the economy. The start of a healthy economy is healthy human capital, which such advances will later guarantee. By ensuring there are fewer sick offs and less spent on health care, the economy generally improves from advances in research in medicine.
At the outbreak of an epidemic, panic-buying becomes a norm before it flattens out to normal purchases. After panic-buying comes a negative effect on consumption, where people buy less and less. According to Jonung and Roeger (2016), negative consumption spending provides a positive boost for savings. The shock on savings provides capital for starting businesses and investment after the pandemic, which has a positive impact on the economy. Stupak (2019) informs that following the 2007-2009 economic recession, which coincided with the H1N1 pandemic, the government lowered interest rates, which improved business confidence. Lowering of the interest rates and increased growth in savings during the recession and pandemic period saw a year-over-year increase in investment, peaking at 13% in 2012 (Stupak, 2019). More people, therefore, invested their savings following the reduced consumption during the recession and epidemic. While it may be difficult to credit the peaking investment and business startups after 2009 to the economic recession or the pandemic, there is general agreement among economists that the end of pandemics coincides with increased economic activities and investment, which contribute to the overall national GDP.
The negative impacts of pandemics, however, far outweigh the positive impacts. Pandemics traditionally divert investment and consumption from other areas of the economy to medical spending. Verikios et al. (2011) argue that in the 2009 H1N1 swine flu pandemic, individuals spent $US3 on pharmaceuticals in subclinical settings, $293 on flu clinic and physician costs, $18,293 on hospital cases, and $85,000 on ICU cases, while in general deaths cost $46,120. These spendings on health care instead of in investment, especially given the precarious economic situation at the time hurt the nation’s GDP. McKibbin (2009) indicated that the pandemic cost the nation $700 billion and the global economy $4 trillion in 2009. Injecting the amount spent on health care occasioned by the pandemic into the struggling economy had the potential of turning the tide in favor of better economic stability and recovery.
The pandemic’s negative impact was also evidenced by the number of lost workdays. Two ways in which the pandemic caused losses in workdays include workers not reporting to work due to sickness and parents caring for their children. According to Verikios et al. (2011), each worker with a subclinical case lost 0.5 workdays, clinical cases lost 2.4 workdays, while hospital and ICU cases lost 13.9 workdays. Parents, on the other hand, lost 70% of the total workdays accredited to workers due to caring for their ill children or schools having been closed for prophylaxis purposes.
One of the most affected industries during the 2009 H1N1 pandemic was the travel and tourism industry. At the start of the pandemic, few tourists traveled to and from the nation. As the pandemic continued to ravage, consumers and businesses responded by restricting travel and vacation plans. According to Ott (2018), there was an estimated $700 billion in economic loss, and a 5.5 percentage decrease in the nation’s GDP. Part of the losses came from reduced revenues from travel and tourism sectors, which are both sensitive to pandemics and disease outbreaks.
For the construction industry, the potential for positive impact lied in investment that came after the end of the pandemic. The upsurge in investment following increased consumption and more investment meant that contractors got more work following the pandemic. An upsurge in investment impacts the construction industry by making funds available for different projects.
The downside of the pandemic, however, is reduced investment. According to Verikios et al. (2010), H1N1 reduced investment by 0.9%. Moreover, the epidemic caused the appearance of excess capacity in the industry, which negatively impacts investment in the industry (Verikios et al., 2010). The reduction in investment in the construction industry harms employment and a subsequent reduction in real wage rates. In essence, individuals in the construction industry lose their jobs and those that remain or get employment have to contend with lower wage rates.
Like the H1N1 pandemic, the current COVID-19 has both positive and negative economic impacts on the economy and the construction industry. One of the positive impacts of COVID-19 is an investment in research in medicine. Recently, President Trump declared COVID-19 a national emergency, a move that allowed the federal government to access $50 billion in emergency relief funds (BBC, 2020). Such funds give the federal government leeway to invest in medical research towards the cure and vaccine for the virus. If successful, such vaccines and cures could bring millions in revenue from their export.
The currently interconnected world means that nationwide lockdowns caused by the virus will have far-reaching effects on individual nations’ economies. One area that is bound to suffer is supply chains. According to Delivorias and Scholz (2020), the pandemic has the potential of reducing the baseline GDP growth rate for 2020 for the U.S. by 0.1-0.2 percentage points. There are also potential losses emanating from lost workdays as people stay at home to avoid getting the disease. Companies have additionally halted operations, which not only affects consumer spending negatively but also sets up organizations for potential losses in revenue and human capital due to the possible deaths of their employees.
The possible impacts of COVID-19 on the construction industry are still infantile. However, like the H1N1 pandemic, possible positive impact including bouncing back of the sector at the end of the pandemic as more people invest in the industry. However, the industry is looking at a bleak future, where there are possibilities of higher material costs and slower completion of projects. These have the potential of eating into contractors’ profits. Goodman (2020) informs that the construction industry relies on China for 80% of its materials. The current lockdown in China means sourcing for materials from other locations, which might be not only expensive but also slow.
The occurrence of pandemics has both positive and negative effects on the economy. Triggering economic stimulant plans and investment are among the positive effects of pandemics. However, most pandemic causes economic losses, loss of jobs, workdays, and human capital. These effects are present across different industries, including the construction sector. The impact of the current COVID-19 outbreak is yet known, however, delays in supply chains, loss of work hours, are human capital are among the negative impacts currently evident.
CDC (2019). 2009 H1N1 Pandemic. https://www.cdc.gov/flu/pandemic-resources/2009-h1n1-pandemic.html
Delivorias, A. & Scholz, N. (2020). Economic Impact of Epidemics and Pandemics. European Parliamentary Research Service.
Frangoul, A. (2014). Counting the costs of global epidemic. CNBC. Retrieved from https://www.cnbc.com/2014/02/05/counting-the-costs-of-a-global-epidemic.html
Goodman, J. (2020). 6 ways the coronavirus outbreak will affect construction. Construction Dive. Retrieved from https://www.constructiondive.com/news/6-ways-the-coronavirus-outbreak-will-affect-construction/574042/
Jonung, L. & Roeger, W. (2016). The Macroeconomic Effects of a Pandemic in Europe—A Model-based Assessment. Brussels: European Commission
McKibbin, W., J. (2009). The swine flue outbreak and its global economic impact. Brookings. Retrieved from https://www.brookings.edu/on-the-record/the-swine-flu-outbreak-and-its-global-economic-impact/
Ott, L., S. (2018). The economic impact of an influenza pandemic on the United States. Liber8 Economic Information Newsletter.
Stupak, J., M. (2019). Introduction to the U.S. economy: Business investment. In Focus.
Verikios, G. et al. (2010). H1N1 Influenza in Australia and its Macroeconomic Effects. Clayton: Center of Policy Studies
Verikios, G. et al. (2011). The global economic effects of pandemic influenza. 14th Annual Conference on Global Economic Analysis, Venice.