Economic effects of the Covid-19 epidemic
Topic: Long run effects of the Covid-19 pandemic on business opportunities
Author: Stevan Sijan Stojic
Word count: 2570
Abstract
This essay will mainly focus on the current and long run effects of the pandemic on
business opportunities in certain industries. As the virus has already spread to every nation in the
world, it would be impossible to analyze the overall effect worldwide. Therefore, this work will
concentrate only on the US, because it could be argued that the virus had the biggest impact
there. Firstly, I will analyze and examine which industries have been impacted the most, and then
I will try to draw out a conclusion as to what can be expected in the near future for business
opportunities. The reader should also consider that due to the disease being unknown and new to
medicine it is hard to forecast the future impact the virus will have on any kind of business
activity.
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Introduction
The Covid-19 pandemic is the biggest pandemic since the Spanish flu. It was firstly seen
in Wuhan China, and a few months later it spread to every continent, infecting almost seven
million people (as of 08/06/2020). A country like the US was always vulnerable due to its poor
healthcare system and the lack of investment in public healthcare.
The pandemic has affected all of the industries in the United States, most of them in a negative
way. This is proven by the fall of the stock market and the contraction of the economy. Many
people have lost their job, precisely around 16%1 ,according to the IMF, and this has further
increased the already existing inequality and unemployment in the States. Nevertheless, the US
economy surely suffered as a result of Covid-19.
In order to combat the outbreak, the US has implemented many measures including: social
distancing, travel restrictions, closure of schools, state emergencies, and so on… However, due
to the sheer size of the US, and the size of the population it was a very hard job to contain the
outbreak. Since the outbreak was not prevented many businesses went through a rough period.
How will this affect the future business opportunities, that is the question that this essay will try
to answer in a speculative way.
Travel Industry
The travel industry is very important for the American economy. In 2019, domestic and
international travelers spent around $1.1 trillion in the US. This alone has contributed to $180
billion in tax revenues, and it financed approximately 9 million jobs. Another interesting fact is
that on average every $1 million spent on traveling resulted in eight jobs in the industry, which is
surprisingly high compared to other industries2. However, this lucrative and expanding industry
was partly ruined by the current pandemic; airline companies suffered as their revenues went
down simply because people are not allowed to travel. Simultaneously, many other businesses
relying on tourist money will face major economic fallout. Overall, the whole industry is in a
standstill which is causing huge losses and unemployment.
This has a huge impact on future opportunities. The non-existent demand for commercial flights
caused by government restrictive measures and low consumer confidence will continue to
damage the travel industry. Therefore, the business opportunities will most definitely be even
lower than before. The travel industry already has big competitors, such as: Qatar Airways,
Lufthansa, Emirates, American Airlines, and many more. Even before the pandemic it was an
ambitious task for new firms to successfully penetrate the market. The future opportunities for
already existing firms depend on consumer confidence and the spreading of the virus. Many
people are still skeptical and unwilling to travel, and this will continue to sink the travel industry.
1
Policy Responses to COVID19. (2020). Retrieved 8 June 2020, from https://www.imf.org/en/Topics/imf-andcovid19/Policy-Responses-to-COVID-19#U
2
U.S. Travel Association. (2020). U.S. TRAVEL AND TOURISM OVERVIEW (2019).
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Travel companies are trying to minimalize their losses, and their future is currently dependent on
the outgoing fight against the pandemic.
In conclusion, it is very unlikely that there will be any new entrants in the travel industry due to
the circumstances. As the virus has spread to every nation, while lowering the global GDP it will
be troublesome for small airline companies and potential entrants to compete with already
established and well-known airlines.
Hospitality Industry
The hospitality industry, mainly hotels, are closely related to the travel industry. With a
significantly smaller number of visitors, hotels are facing tremendous losses. According to
business insider, around four million people could lose their job due to the pandemic3. This leads
to a contraction in GDP and a rise in unemployment, making a recession a more likely outcome.
Nevertheless, the travel and hospitality industries are simultaneously losing revenue, while the
virus is still continuing to ravage the US economy.
As for the future opportunities, I believe that many new potential entrants to the market will wait
things out. Since, the overall consumer confidence is very low at the moment it would be absurd
to try and enter the market during these times. Furthermore, many restrictive measures are still in
place and this disables the option to even open hotels and try and get the business running.
It could be argued that staying at hotels and travelling is a luxury good/service, so even if the
virus is beaten many people could be in a position where it is impossible for them to travel due to
the lack of demand for labor during the pandemic. These are mostly the people that have lost
their job during the pandemic; therefore, I think they wouldn’t spend their money on vacations
and hotels. This is also a reason why hospitality may not seem as an attractive option to potential
entrepreneurs and investors.
Since both the hospitality and travel industry are so important to the US economy, the
government will try to get these businesses back and running as soon as possible in order to
boost the economy, lower the unemployment rate, and expand the GDP.
Healthcare Industry
The healthcare system in the US is unique when compared to Europe, simply because
there is no free healthcare in the US. Instead, people need to get insurances in order to be treated
in hospitals or etc. The US spends $3.6 trillion4 a year for healthcare, close to 17 percent of its
GDP, and even then, the hospitals are still getting overrun and exposed by one virus. Hospitals
are facing cash shortages as they are not able to perform their usual services that bring revenue.
Hospitals were so low in cash that they had to release workers even though the pandemic was
still spreading. This just proves as to how serious the situation is for healthcare institutions.
3
Wiley, M. (2020). 4 million people who work in the US hotel industry could lose their jobs in the coming weeks
due to the coronavirus. Retrieved 12 June 2020, from https://www.businessinsider.com/hotel-industry-could-lose-4million-jobs-coronavirus-covid19-unemployment-2020-3
4
How coronavirus broke America’s healthcare system. (2020). Retrieved 14 June 2020, from
https://www.ft.com/content/3bbb4f7c-890e-11ea-a01c-a28a3e3fbd33
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Furthermore, with the economy slowing down due to the pandemic, the government decreased
healthcare spending in Q1, making the US even more vulnerable. The healthcare bailout of $175
billion also isn’t enough to cover the expenses.
The whole US healthcare system is based on insurance, so only people with insurance will get
“free” treatment when infected. Approximately half of the government fund is spent on the
healthcare industry, by providing public insurance. Even still, around 27 million Americans
don’t have health insurance, and that number is more likely to increase as the demand for labor is
going down.
The only way for the healthcare sector to recover is to get even more funding from the
government, and for this to be possible the government would need to cut spending in other
industries.
Currently, I think that many hospitals could go bankrupt because they are private, non-profit
organizations which are losing money as a result of the outbreak. Hospitals are going through a
rough time period, and this wont change until the number of infected people decreases. So, until
the virus calms down, there probably won’t be any new entrants to the healthcare industry. All of
this makes the healthcare industry a non-attractive market, at least for now.
But there is another side of the story, the US government now knows that the healthcare industry
is very vulnerable to a pandemic, and they could increase their spending in this industry in order
to be ready for a potential future epidemic. It is even possible that the government changes their
way of funding this sector, instead of issuing insurances they have an option to make healthcare
free by using tax money. This option is a huge stretch, but after seeing how the US performed
against Covid-19 it could be taken into consideration by government officials.
Small Businesses
Small businesses have arguably been on the biggest hit since the start of the pandemic.
These privately-owned firms usually don’t have enough cash reserves to survive a few months
without revenue. According to CBC5, the pandemic could lead to 15000 retail stores to be closed
and there are predictions stating that around three million jobs could be lost. This is obviously a
big hit to the US economy, and it will take a long time to restore it to its previous state before the
pandemic. As current entrepreneurs of small businesses are struggling to cope with the effects of
Covid-19, potential future entrants are most likely unmotivated and afraid to start-up firms now.
However, after the pandemic there will be a surplus of workers so it will be easier for new
companies to find a suitable workforce for a lower price. Overall, the current situation is not
good for newer firms, and that will not change until the virus is stopped. In the near future I think
there will be a smaller number of newer entrants in the market because of the recession and the
low consumer confidence.
5
Huddleston Jr., T. (2020). How small business owners are coping with COVID-19 pandemic: 'It was my civic duty
to be a part of the solution'. Retrieved 14 June 2020, from https://www.cnbc.com/2020/03/23/how-small-businessesacross-us-are-coping-with-covid-19-pandemic.html
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Economic Policies Used
The government has implemented various fiscal and monetary measures in order to
minimize the negative effects of the pandemic on the economy. Around $483 billion was
provided for a legislation called “Paycheck protection program and healthcare enhancement act”,
this money was used to help small businesses that retained workers, and the remaining money
was used in the healthcare sector. A further $2.3 trillion (“CARES Act”) was used to: provide
one-time tax rebates to individuals, expand unemployment benefits, administer food for those in
need, and provide loans and guarantees. Furthermore, $8.3 billion was used for virus testing, and
helping people that are infected by giving them paid leave. These were the expansionary fiscal
policies used to boost economic growth and battle the negative effects that the pandemic had.
On the other hand, monetary policies were also used, federal funds rate were lowered to 0.25bp
this leads to cheaper bank lending which in turn allows people to borrow more. Federal reserve
also introduced facilities to support credit flow. The community bank leverage ratio was lowered
to 8 percent to help companies (All of the statistics have been taken from the official IMF site).
These policies were used to reduce the impact of the virus, and to try and get the economy out of
a recession. These measures also make the process of market penetration easier. With these
measures in effect, it could be possible for new competitors to enter the market in Q3 of 2020
when the economy gets closer to how it was before the pandemic. However, it is impossible to
predict when entering a market in the US could be profitable due to the uncertainty around the
virus. We don’t know when the second wave of Covid-19 may hit and overwhelm the states
again.
Current Protests
People all over the states are currently protesting against police brutality and racism. On
the 25 of May, George Floyd was brutally murdered by police officers in Minneapolis. This has
outraged many people causing riots and protests that are ruining the already damaged economy
even more.
th
The protests have further decreased consumer confidence, while also ruining many local
businesses and infrastructure with property damage and looting. Many small businesses were
harmed by property destruction, vandalism and looting. The property damage has led to
bankruptcies, bad economic performance, and increased insurance claims. Furthermore, national
supply chains are disrupted because of uncertainty around safety. This slows down the economic
growth rate even more, while also making it impossible for some companies to function
normally. So, after dealing with the pandemic and everything that comes with it, entrepreneurs
now face an even harder challenge to try and keep their business running throughout the riots.
Another aspect to this story is the possibility of an accelerated spread of Covid-19 as thousands
of people are gathering together, without any social distancing, in order to protest. It is very
likely that there will be a spike in the number of infected, and this will just prolong the recession
period for the US. The protests couldn’t have happened at a worse time, just when things started
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to look better people started rioting and looting which could ultimately lead to the government
having no other option but to impose restrictive measures again.
Final Analysis
All of the industries in the US have been affected by the pandemic, ultimately causing a
recession. The closing of non-essential firms and stay-at-home regulations have resulted in
revenue losses for most businesses. The government has tried to mitigate the economic impact
by imposing certain fiscal and monetary policies, and this has certainly helped in reducing the
negative effects. However, many people still lost their job and, thus, unemployment has
increased while the GDP declined. So, the US isn’t a good place to try and start up a new
business right now, and with the low consumer confidence and recession it is unlikely that
anyone would even try to establish a new company in the near future.
Additionally, the riots and protests have just made the situation much worse for current business
owners and future entrants. Ruined infrastructure, looted stores, and disrupted supply chains are
all reasons enough for people to give up on opening new businesses. Moreover, I think that
consumer confidence wont fully recover until the riots and the pandemic have surely concluded.
Overall, the Covid-19 pandemic severely damaged the US, infecting more than two million
people, and causing the death of 115.000 people6. On the economic side of things, the GDP was
decreased by 4,8% as the result of firms not being able to operate. Many people lost their jobs,
firms lost revenues, but the situation was improving until the protests started. Now it is a big
question as for what the future holds for the US. The number of infected could spike again,
leading to overrun hospitals and restrictive measures being implemented once more. However,
this is still a big question mark, and no one knows what could happen exactly. As for business
opportunities, I think that there wont be any new entrants to the market due to many uncertainties
and low consumer confidence, plus the fact that a second wave of the virus is likely to happen.
However, when the economy stabilizes and the virus is beaten new business opportunities will
surely arise, and it would be best to wait things out until then.
6
Coronavirus Disease 2019 (COVID-19) in the U.S. (2020). Retrieved 14 June 2020, from
https://www.cdc.gov/coronavirus/2019-ncov/cases-updates/cases-in-us.html
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References
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https://www.imf.org/en/Topics/imf-and-covid19/Policy-Responses-to-COVID-19#U
U.S. Travel Association. (2020). U.S. TRAVEL AND TOURISM OVERVIEW (2019).
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Slotnick, D. (2020). The coronavirus is slamming the US travel industry, with experts predicting
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from https://www.businessinsider.com/coronavirus-impact-america-travel-industry-airlineseconomy-2020-2
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coming weeks due to the coronavirus. Retrieved 12 June 2020, from
https://www.businessinsider.com/hotel-industry-could-lose-4-million-jobs-coronavirus-covid19unemployment-2020-3
How coronavirus broke America’s healthcare system. (2020). Retrieved 14 June 2020, from
https://www.ft.com/content/3bbb4f7c-890e-11ea-a01c-a28a3e3fbd33
Herman, B. (2020). Health care bailout fund reaches $175 billion. Retrieved 14 June 2020, from
https://www.axios.com/health-care-bailout-fund-coronavirus-175-billion-361923f7-e5bb-4fb09117-1d0a3c759c0d.html
Huddleston Jr., T. (2020). How small business owners are coping with COVID-19 pandemic: 'It
was my civic duty to be a part of the solution'. Retrieved 14 June 2020, from
https://www.cnbc.com/2020/03/23/how-small-businesses-across-us-are-coping-with-covid-19pandemic.html
Liverani, C. (2020). Leaked CDC documents: Coronavirus is spiking in US again. Retrieved 14
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