We’re Several Months into the COVID Economy. What Have We Learned?
Skip to content
Economics Aug 26, 2020

We’re Several Months into the COVID Economy. What Have We Learned?

From household spending to the strength of the dollar, an economist sees some clear trends—and signs of what’s to come.

economist reads board of recession indicators

Lisa Röper

Based on insights from

Sergio Rebelo

Editor’s note: This is part of a series of articles based on Kellogg Executive Education webinars focused on COVID-19 and crisis management.


Even months into the pandemic, it feels as though much of the information that shapes our future remains unknown: Will schools be open? Will people go out to shop and eat out this week? Will my community’s positivity rate go up or down?

Still, it is worth taking stock of what we do know—or at least know more about now than we did when the pandemic began.

According to Sergio Rebelo, a finance professor at the Kellogg School, some stable trends are emerging with respect to the economy. In a recent webinar with Kellogg Executive Education, Rebelo discussed what we’ve learned about the economic impact of COVID-19, and what this information can tell us about the future. Below is a sampling of what he presented.

Each Thursday, Kellogg faculty are offering free webinars on how COVID-19 is impacting businesses, markets, and careers. You can sign up for upcoming sessions, hosted by Kellogg Executive Education, here.

To start, and as we might expect, we’ve seen that stay-at-home orders are devastating to economic activity. Early on, governments imposed simple containment measures such as lockdowns, Rebelo says, “because there was no time to prepare other policies.” At the same time, we’ve seen that lifting a lockdown while the virus is still raging does not prompt much of an economic recovery, because people are still worried about their health.

In contrast with the simple containment measures implemented in much of the western world, countries like South Korea deployed a “smart containment,” strategy. This strategy combines robust random testing, which allows public-health officials to find infected people who are asymptomatic, with quarantines for those who test positive. Together with Martin Eichenbaum of Northwestern University and Mathias Trabandt of Freie Universität Berlin, Rebelo simulated the impact of smart containment on health and economic outcomes. They found that this policy reduces both the death toll of the epidemic and the severity of the recession.

“This strategy is a win–win,” he says. Why? “There’s fewer infected people circulating, so the risk of infection is smaller. The result is fewer infections and fewer deaths. At the same time, it’s less dangerous to go to work, take public transportation, or dine at a restaurant, so we have a smaller recession.”

We are also learning how spending has shifted in response to the pandemic. For example, in the U.S., high-income households cut spending much more than low-income households. This is likely because higher earners cut more activities and services that require lots of interpersonal contact. Think sporting events, theater performances, or dining out.

“Wealthy households cut their spending on consumption that requires social interaction by quite a bit to self-protect,” Rebelo says. This type of spending likely made up a smaller portion of low-income households’ budgets pre-pandemic.

Rebelo also discussed his ongoing research with Eichenbaum, Trabandt, and two other coauthors, Miguel Godinho de Matos of the Portuguese Catholic University and Francisco Lima of Statistics Portugal. Using administrative data for Portuguese public servants, they are studying the spending behavior of different age groups. Crucially, because civil servants have relatively stable jobs, they likely were not altering their spending as a reaction to a dramatic change in income.

The researchers found that people in their 70s cut consumption by 41 percent compared with those age 20–49, who cut back by 26 percent. The split is even more dramatic when the researchers focused only on “high-contact” spending, like restaurant meals or sports events.

“We see people behaving rationally,” he says. Older people are most at risk of dying from COVID-19, so it makes sense that they would reduce spending by more than young people, particularly on types of consumption that involve social contact.

Next, Rebelo turned to some economic indicators. Overall, he says, most organizations and economists expect the world economy to bounce back in 2021.

This expectation is borne out by the evolution of the price of copper. After an initial, precipitous drop this spring, the price has recovered and is even a bit higher than it was pre-COVID-19. This pattern is telling because copper is widely used in manufacturing.

“That means commodity markets are looking ahead and seeing that the global economy will recover,” Rebelo says.

He also looked at the strength of the dollar. During the Great Recession, which was centered in the U.S., the dollar was on average quite weak. That is not the case today. The recession is global and the dollar is strong.

“It’s a moment of great uncertainty, and people see the dollar as a safe haven,” he says.

Looking toward the future, Rebelo worries about growing inequality both within the U.S. and between developed and developing countries. It’s become clear that those who were most physically and economically vulnerable—due to a lack of access to quality healthcare or the need to work in high-contact industries, for example—have been hardest hit by COVID-19 and the resulting economic fallout. Those communities will have a harder time recovering.

“We’re going to exit this crisis with much more inequality than we started [with],” Rebelo says, “and we started with a lot of inequality.” This inequity can potentially fuel a rise in nationalism, with people being quick to blame foreigners, as well as a rise in populism, with politicians winning elections by promising quick fixes that don’t really work.

But, on a more optimistic note, Rebelo believes that a more resilient global economy could emerge from the pandemic. Companies can build this resilience through more flexible sourcing, more robust inventory management, access to differentiated sources of financing, lower fixed costs, and more diversification in revenue sources.

And, hopefully, we will learn the importance of working together across the globe to solve the problems that afflict us all, Rebelo says.

“That lesson might potentially open the door to a new era of cooperation in the world economy,” he concludes.

You can read previous articles from this series here.

Featured Faculty

MUFG Bank Distinguished Professor of International Finance; Professor of Finance

About the Writer

Emily Stone is the senior editor at Kellogg Insight.

Most Popular This Week
  1. How Are Black–White Biracial People Perceived in Terms of Race?
    Understanding the answer—and why black and white Americans may percieve biracial people differently—is increasingly important in a multiracial society.
    How are biracial people perceived in terms of race
  2. Don’t Wait to Be Asked: Lead
    A roadmap for increasing your influence at work.
    An employee leads by jumping from the bleachers and joining the action.
  3. How (Not) to Change Someone’s Mind
    Psychologists have found two persuasion tactics that work. But put them together and the magic is lost.
    A woman on a street talks through a large megaphone.
  4. Which Form of Government Is Best?
    Democracies may not outlast dictatorships, but they adapt better.
    Is democracy the best form of government?
  5. How Autocracies Unravel
    Over time, leaders grow more repressive and cling to yes-men—a cycle that’s playing out today in Putin’s Russia.
    autocrat leaning over battle map surrounded by yes-men.
  6. Knowing Your Boss’s Salary Can Make You Work Harder—or Slack Off
    Your level of motivation depends on whether you have a fair shot at getting promoted yourself.
    person climbin ladder with missing rungs toward rich boss surrounded by money bags on platform
  7. Sitting Near a High-Performer Can Make You Better at Your Job
    “Spillover” from certain coworkers can boost our productivity—or jeopardize our employment.
    The spillover effect in offices impacts workers in close physical proximity.
  8. Why Do Some People Succeed after Failing, While Others Continue to Flounder?
    A new study dispels some of the mystery behind success after failure.
    Scientists build a staircase from paper
  9. Will AI Eventually Replace Doctors?
    Maybe not entirely. But the doctor–patient relationship is likely to change dramatically.
    doctors offices in small nodules
  10. It’s Performance Review Time. Which Ranking System Is Best for Your Team?
    A look at the benefits and downsides of two different approaches.
    An employee builds a staircase for his boss.
  11. Entrepreneurship Through Acquisition Is Still Entrepreneurship
    ETA is one of the fastest-growing paths to entrepreneurship. Here's how to think about it.
    An entrepreneur strides toward a business for sale.
  12. Four Strategies for Cultivating Strong Leaders Internally
    A retired brigadier general explains how companies can prioritize talent development.
    Companies should adopt intentional leadership strategies since developing leaders internally is critical to success.
  13. Too Much Cross Talk. Too Little Creativity. How to Fix the Worst Parts of a Virtual Meeting.
    Six tools from an unlikely place—improv comedy—to use on your next Zoom call.
    meeting participants improv
  14. Take 5: How to Be Prepared for Important Career Moments
    Expert advice on getting ready to network, negotiate, or make your case to the CEO.
    How to be prepared
  15. Why Do Long Wars Happen?
    War is a highly inefficient way of dividing contested resources—yet conflicts endure when there are powerful incentives to feign strength.
    long line of soldiers marching single file through a field
  16. Podcast: The Case for Admitting (Some) Flaws at Work
    On this episode of The Insightful Leader: Why showing vulnerability can actually be a boon for leaders.
  17. What Went Wrong at AIG?
    Unpacking the insurance giant's collapse during the 2008 financial crisis.
    What went wrong during the AIG financial crisis?
  18. 2 Factors Will Determine How Much AI Transforms Our Economy
    They’ll also dictate how workers stand to fare.
    robot waiter serves couple in restaurant
  19. Take 5: Not So Fast!
    A little patience can lead to better ideas, stronger organizations, and more-ethical conduct at work.
More in Leadership & Careers Careers