Welfens, P.J.J.: Macroeconomic Aspects of the Coronavirus Epidemic: Eurozone, EU, US and Chinese Perspectives

Welfens, P.J.J.: Macroeconomic Aspects of the Coronavirus Epidemic: Eurozone, EU, US and Chinese Perspectives Key words: Coronavirus, Health System, Macroeconomics, EU, US, China

JEL classification: I11, I18, F01, H51

Summary: 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.



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