25 March 2020

The Coronavirus and the Great Influenza Epidemic - Lessons from the "Spanish Flu" for the Coronavirus's Potential Effects on Mortality and Economic Activity

A typical country saw potential economic declines in both GDP and consumption of 6 and 8 percent. And there is some evidence that higher flu death rates decreased realized real returns on stocks and, especially, on short-term government bills. Analyzing the Great Influenza Epidemic of 1918–1920 provides plausible upper bounds for economic impacts under the coronavirus.

Key issue

Anxiety over the coronavirus pandemic (COVID-19) has motivated people to seek lessons from history, notably the 1918-1920 Great Influenza Pandemic, often mislabeled as the Spanish Flu. Our ongoing study assembled annual data on flu death rates for 43 countries 1918 1920, representing 90 percent of world population. The overall death rate was 2.0 percent, corresponding to 39 million fatalities. Death rates varied sharply across countries, with the highest in India, 5.2 percent. The rate in Spain was not special, 1.4 percent, and that in the United States was lower than average, 0.5 percent. Australia avoided the flu in 1918 by employing an extreme maritime quarantine and ultimately had a comparatively low death rate of 0.3 percent. When applied to current world population, the overall death rate of 2.0 percent implies a staggering 150 million deaths.

Approach and methodology

We studied the impact of the Great Influenza Pandemic on macroeconomic outcomes. This assessment was challenging because of the overlap in 1918 between the final year of World War I and the peak year of the Pandemic. To isolate effects from flu deaths, we held constant the intensity of war by considering military combat deaths.

We estimated that a rise by one percentage point in the flu death rate led to a decline in real GDP by 6 percent in the typical country. These results support previous findings that—after World War II, the Great Depression, and World War I—the Great Influenza Pandemic was the next most serious adverse global macroeconomic event since at least 1870.

Key findings and conclusions

Implications for the ongoing coronavirus pandemic are unsettling. The potential exists for unprecedented numbers of deaths and for a major global economic decline, some of which has already occurred. On the bright side, these outcomes are only possibilities, corresponding to plausible worst-case scenarios. There is no doubt, however, that the potential losses in lives and economic activity justify large outlays—if useful—to limit the damage.