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Pandemic's toll to economy nearly $5 trillion over two years

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Without a concerted effort to slow the spread of the coronavirus, the U.S. economy could take a nearly $5 trillion hit over two years due to the pandemic that's killed more than 270,000 Americans to date, according to a new study from the University of Southern California.

The economic pain inflicted by COVID-19 will result in net GDP losses of as much as $4.8 trillion, or 23%, from March 2020 through February 2022, according to projections by researchers at the USC Center for Risk and Economic Analysis of Terrorism Events, or CREATE. 

The unfathomable tally is a worst-case scenario in which masks and social distancing do not become more widespread, hindering attempts to reopen the economy amid ongoing waves of infections, according to the findings published in the journal Economics of Disasters and Climate Change.

"It's looking increasingly like we're moving towards that one, with mandatory closures," Terrie Walmsley, a CREATE research fellow and adjunct assistant professor of practice in economics at USC's Dornsife College of Letters, Arts and Sciences, told CBS MoneyWatch, referring to the worst of three possible outcomes envisioned by researchers. "Fortunately, the vaccine is on the horizon."

The pandemic has already proved more dire than the most optimistic scenario, in which researchers assumed the economy would fully reopen after three months without a second wave of infections and closures. But even that rosiest of models predicted a 14.8% drop in U.S. GDP, or $3.2 trillion. 

"That's a bigger hit on the U.S. economy than the Great Recession, which is more on the order of 12% annually," Adam Rose, a research professor at the USC Price School of Public Policy, stated.

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Looking at it another way, U.S. GDP losses at their worst, due to COVID-19, would be more than quadruple that of China, which imposed strict containment measures and endured a shorter lockdown period, Rose and his colleagues estimated.

Walmsley and her fellow researchers began modeling possible impacts of the coronavirus on GDP — the standard measure of goods and services produced by a nation's economy — after states including California and New York in March responded to an increase in COVID-19 cases by shutting down all but essential businesses and public services. 

One model showed "a very large decline in GDP, at its worst point 22.3% lower than where we would be normally — think of that as in the first year; then, with pent-up economic demand, it would start to rise to 14.8% below to where we would have been if COVID had never occurred," Walmsley explained. 

Mandatory closures and partial reopenings are the biggest factors in the economy's decline, but consumer behavior —including millions of people who choose to avoid retail crowds and social gatherings — also plays a significant role, the researchers said.

"Based on our model, we estimate that 'avoidance behavior' can result in nearly $900 billion in losses in U.S. GDP in the worst-case scenario. Because consumers in places like California can't engage in many activities like eating inside a restaurant, they are saving their money," Dan Wei, a CREATE research fellow and research associate professor at USC Price, noted.

The economic losses could be partly offset by increased consumer spending after reopening, the researchers said.

"The key question is: When will we see a complete reopening across this country?" Rose concluded. "We simply cannot predict that, especially in light of the fact that we have not gained control of the spread of the disease."

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