Morningstar - Q4 2020 - 56

Spotlight: World After COVID-19

limit the spread of the virus. Some studies of
the Spanish flu have concluded that while
consumer habits did not change much, social trust
did deteriorate.9 But because the massive
economic and societal shock of World War I
occurred roughly concurrently with the
Spanish flu, it is difficult to infer any kind of causal
impact from the latter.
SARS
Severe acute respiratory syndrome started in
China in November 2002 and quickly expanded to
nearby countries. The total case and death
count of SARS were 8,437 and 813, respectively,
according to the World Health Organization.
Approximately 63% of those cases were in
mainland China, while 21% were in the city of
Hong Kong. In July 2003, although no vaccine was
developed, the SARS outbreak was contained,
and the WHO declared an end to the pandemic.
It remains contained today. While the number
of deaths from SARS was relatively low thanks to
successful containment, the virus' very high
fatality rate (around 10%) meant that the potential
for harm was very high, and this caused
heightened fear among the public.

The habit of wearing masks is one long-term
social impact SARS had. It became widely
accepted during the pandemic as it was the first
line of defense against a virus that could
be passed from person to person. Air travel and
tourism in mainland China and Hong Kong
were affected by SARS fears. However, the impact
was short-lasting; air travel and tourism
began to recover in 2004.
On the retail front, e-commerce was just coming
on the scene in China during the pandemic.
While we don't have data on China's e-commerce
adoption during the 2000s (we assume less
than 1% penetration), we do know that China's
online retail industry got its start in that
decade. Alibaba BABA was founded in 1999,
for example. While SARS did not force consumers
in China to change their consumption habits,
it did provide justification for some companies
to begin investing more aggressively in

developing their e-commerce platforms. SARS
probably played a supporting role in China's
e-commerce adoption, with other factors like the
country's surging Internet adoption playing
a vastly bigger role.
H1N1
The H1N1 swine flu pandemic began in early 2009
and lasted through the third quarter of 2010.
It affected mainly the U.S. and Mexico. With more
than 60 million cases and 12,000 deaths in
the U.S., we can assume that the pandemic did
affect social behavior to some degree. It's
worth noting that the H1N1 case fatality rate
(0.02% based on data from the Centers
for Disease Control and Prevention) was an order
of magnitude lower than COVID-19-no more
dangerous than the seasonal flu.

It's difficult to determine the causal impact of
H1N1, given that the impact of the Great Recession
was still being felt in the U.S. While the economic
downturn drove down overall travel and tourism,
the H1N1 pandemic may have played a minor
role. However, any social changes that it brought
on were temporary as activity in travel and
tourism mounted a full recovery. Perhaps this was
partly because the H1N1 vaccines became widely
available in December 2009.
H7N9
The H7N9 bird flu epidemic hit China in March
2013, and through 2018, according to the WHO,
there were 1,567 cases and 615 deaths. While
over 39% of reported cases led to deaths
(based on WHO data), the number of cases is
low compared with SARS and H1N1 as person-toperson transmission of the virus is limited.
As such, the virus has been contained
even without the development of a vaccine. The
impact of H7N9 on social distancing and
consumer behavior in mainland China and
Hong Kong was very limited.

Overall, these diseases have not had large
long-term impacts on society. While some were
associated with changes in consumer
behavior, these changes were longstanding trends

9 Aassve, A., et al. 2020. "Pandemics and Social Capital: From the Spanish Flu of 1918-19 to COVID-19." VoxEU.org, March 22.

Morningstar Q4 2020

predating the epidemics. At best, the pandemics
modestly accelerated these trends by shifting
consumer habits.
Lessons Learned
There is considerable debate about the long-term
impact of COVID-19 on the economy. It could be
argued that the pandemic will dramatically
accelerate ongoing shifts (such as the move to
e-commerce from brick-and-mortar retail),
or that it will create new trends entirely (such as
permanent shifts away from dine-in restaurants
or air travel). Equity markets are implying
a major reshaping of the U.S. economy compared
with how it looked before the pandemic.

We see three ways COVID-19 could have a
long-term impact on the economy. First, consumer
habits could permanently change because of
the pandemic. Second, fear of the next pandemic
could make consumers reluctant to engage in
social activities. Third, sunk costs incurred during
the pandemic could change the long-term
economic calculus of consumers and firms.
We considered five historical episodes in order
to best understand the world after COVID-19.
Our goal is to understand what happens when the
economy experiences an extreme but temporary
external shock. Pandemics are one type of
this class of events, but so also are wars, political
upheaval, and related disruptions. Overall, we
found that these episodes provide only modest
support for the idea that habits, fear, and
sunk costs will have a long-term impact on the
post-COVID-19 economy. K
Preston Caldwell is a senior analyst, economics,
with Morningstar.

http://www.VoxEU.org

Morningstar - Q4 2020

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