Coronavirus-related school closures could erase 1.5% from GDP this year, new report says

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  • The coronavirus pandemic has led to school closures around the world. 
  • As working parents have to take time off or reduce work to take care of children, global gross domestic product is likely to suffer and could fall as much as 1.5% for full-year 2020, according to a Friday report from Capital Economics. 
  • The potential economic impact could be lessened by parents working from home, having access to childcare outside of school, or taking leave, according to the report.
  • Read more on Business Insider.

As the coronavirus pandemic unfolds, countries and cities around the world are closing schools in an effort to contain the outbreak. The decision to close schools could hurt the global economy, however, according to one firm. 

So far, as many as 29 countries including China, Japan, and Iran have closed schools nationwide, according to a Friday report by Capital Economics. In addition, 20 more countries have closed schools at a local level, and it’s likely that more will shutter as the virus spreads, the report says. 

“The most important economic impact of this will be the direct reduction in output due to parents taking time off work to look after their children,” wrote Capital Economics. 

The impact could be especially significant in countries where both parents work, according to the note. Labor market data show that between 15% and 20% of the workforce in the US, UK, and Eurozone would need to take time off work to look after their children when schools are closed, according to the note. 

If school closures last for four weeks, having one-fifth of the workforce off for that period of time has the potential to knock 6% off gross domestic product this quarter, or 1.5% annually, the firm estimates. 

Read more: ‘One of the buying opportunities of a lifetime’: Here’s why Wharton professor Jeremy Siegel thinks the coronavirus-driven stock rout is laying the foundation for a massive bounce back

The firm does admit its estimate could be high. Families with access to childcare outside of school might not have to cut down on work as much, and parents could also work from home, work part-time, or take leave to make up for missed days, according to the note. In addition, it’s possible that childless coworkers could fill in for parents who have to miss work, the firm said. 

All of these things could lessen the impact on GDP to 2.5% per quarter, or 0.6% or less to annual growth. 

“Nonetheless, the potential effect of school closures seems sizeable and is one reason why we are reducing our economic forecasts further for many countries,” the firm wrote. Capital Economics had already cut its global GDP growth forecast to 2% from 2.9%, and now says that 1.5% is “looking likely.” 

Screen Shot 2020 03 13 at 11.42.03 AMCapital Economics

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