About

Start your brilliant career with a degree from Australia's #1 ranked university.

News

Find contact details for any general enquiries.

Engage with us

Find contact details for any general enquiries.

Study with us

Our graduates gain the knowledge and skills to lead organisations, develop public policy, create new companies and undertake research.

Our research

Our research is focused on issues that are highly significant for organisations, the Australian economy, and society at large.

Current Students

Whether you're a new or continuing student, you can find everything you need here about managing your program and the opportunities available to you.

Alumni

Our alumni may be found in the world’s leading companies, policy agencies and universities.

Contact us

Find contact details for any general enquiries.

Image: State Records NSW

Image: State Records NSW

Australian economy: Lessons from the Spanish flu

2 April 2020

How will the coronavirus affect the Australian economy? Lessons from the 1918-1919 Spanish flu pandemic

By Associate Professor Pierre van der Eng

Australia and the rest of the world is increasingly affected by the coronavirus pandemic. Following news in late-February of the number of virus-infected people growing in Australia, the ASX stock index dropped 37% in one month. Uncertainty about the economic consequences of the pandemic sustained this fall.

It is difficult to predict the economic consequences of the pandemic and of the associated measures to contain the spread of the virus, such as the partial lockdown that started 23 March. The Australian government’s unprecedentedly large stimulus packages indicates that it expects significant repercussions.

Australia has gone through a pandemics before and particularly the 1918-19 Spanish flu pandemic was possibly as severe as the current one could become. How do the dimensions of that pandemic compare with COVID-19? What were the economic consequences in Australia of the Spanish flu pandemic and were they different from what other countries experienced?

Comparing the economic effects of the 1918-19 and 2020 pandemics is difficult, because they unfolded differently in different economic contexts. For example, the Spanish flu-related mortality was higher among younger people, while mortality related to COVID-19 is higher among older people. And in 1918 the economic effects of the flu were entangled with those of the late stages of World War I.

During the Spanish flu, governments implemented policies to contain the virus and minimise the economic consequences, as governments are doing now. But the magnitude of currently announced economic stimulus measures around the world are highly likely to exceed that of equivalent measures during 1918-19, certainly in Australia.

The Spanish flu infected 2 million people in Australia and caused 15,000 deaths during 1919, when the pandemic was at its peak (Curson and McCracken 2006: 103-104). This was respectively 37 and 0.28 percent of the population. Projected onto Australia’s population in 2020, these rates suggest that COVID-19 could infect 9 million Australians and that 71,000 Australians may perish as a consequence.

It is difficult to say at this stage what the 2020 mortality rates will actually be in Australia. Current reported COVID-19 infection rates in Italy and Spain are around 0.2% (Worldometers, 1 April 2020). Data from China indicate that 5.7% of those infected with COVID-19 passed away (Baud et al. 2020). Such infection and mortality rates suggest that Australia’s infections could number about 50,000 and the death toll 2,850; far fewer than the projection based on 1919 suggests.  

Much depends on the measures to slow down the spread of COVID-19 in Australia. Measures such as compulsory quarantining and limiting the movement of people were also used during 1919 (Bongiorno 2020). But even if the infection rate in Australia will be double that of Italy and Spain, the toll will still be lower than the projection based on 1919 indicates. Consequently, in relative terms, the 1919 Spanish flu pandemic appears to have been much more severe in Australia than COVID-19 may become.

If we expect a significant impact of COVID-19 on the Australian economy in 2020, the greater relative magnitude of the Spanish flu must have left a much more significant imprint on the economy in 1919. 

Large-scale illness and increased mortality affect the Australian economy in various ways. Productive days are lost due to large numbers of workers in self-confinement or off-work due to illness. Supply chains slow down. Companies see their cash flows decrease due to lower sales. Sales slow-downs or the lockdown of non-essential business leads them to make cost savings by dismissing workers. Government expenditure is diverted away from public investment to health care and increased unemployment benefits.

It is not easy to predict and put a dollar value on such effects today. It is even more difficult to do this retrospectively for 1919. However, the sum of these effects must have revealed itself in estimates of Australia’s GDP. Bryan Haig’s retrospective estimates show that GDP increased by 1.7% during the 1918/19 fiscal year and 3.9% during 1919/20 (Haig 2001: 30). In other words, Australia did not experience an economic recession during the 1919 pandemic. Not even a slow-down, because economic growth had been negative during the previous two years. In addition, the Australian stock market did not crash in 1919 (Taylor 2019).

Maybe these indications of the absence of a recession in 1919 are not so strange. Australia came out of a period of wartime restrictions on supply and demand that contributed to negative economic growth. Such restrictions on the economy were withdrawn after the war ended in November 1918.

In addition, the Spanish flu spread first in Europe and North America, giving Australia time to prepare measures to curtail the spread of the flu as it worked itself towards Australia in the course of 1918. For example, a maritime quarantine helped to mitigate Australia’s flu-related death rate. The rate was much lower than in other countries (Patterson and Pyle 1991: 14-15).

Lastly, the Spanish flu did not halt economic activity in Australia. In terms of mortality, its impact was felt most severely for 6 months, during March-August 1919 (Curson and McCracken 2006: 104). The number of deaths in 1919 indicates that most people infected with the Spanish flu recovered. Many people must have lost jobs during the months when the pandemic raged. However, total employment of the year increased from 1,893,000 in 1917/18 to 1,924,000 in 1918/19 and 1,999,000 in 1919/20. Unemployment increased marginally from 3.4% in 1917/18 to 3.6% 1918/19, decreasing to 3.4% in 1919/20 (Butlin 1977: 90). In other words, most people in Australia’s labour force led productive lives during the remaining 6 months of 1919, if not throughout the pandemic.

What lingered was the memories of anxiety and the sense of disaster that had been fuelled by drastic changes associated with the pandemic, such as prevalence of face masks in the streets, compulsory quarantining, shortages of hospital care and the creation of emergency medical care facilities. But the impact of the pandemic on the Australian economy in 1919 did not amount to a recession.

As mentioned, GDP is an aggregate number. It is the outcome of a multitude of factors, and in 1919 not just the impact of the Spanish flu. More detailed studies are need to substantiate the economic impact of the flu further. Such studies do not exist for Australia. Just three peer-reviewed studies have quantified the economic impact of the Spanish flu in 1918-1919 in the USA and Sweden. Sweden experienced an economic recession in 1918, as did all of Germany’s neighbours during the last year of World War I (Maddison 2010). By contrast, the USA experienced strong economic growth during 1918 and 1919. These three studies used regional economic data in order to analyse the differential impact of the flu pandemic on the sub-economies.  

Brainerd and Siegler (2003) concluded that the severity of the pandemic across US states is positively correlated with subsequent economic growth during the 1920s. Garrett (2009) studied wages across US states during 1918-1919 and established that states and cities with higher flu mortalities experienced higher wage growth. In the case of Sweden, Karlsson et al. (2014) found that the pandemic increased poverty rates, reduced returns on capital, but had no effect on average earnings.

Together, these studies reveal that the US and Swedish economies experienced negative effects such as increased unemployment and poverty, but not an economic recession and no lasting negative effects on economic growth. They do not spell this out, but the reason may well be that the pandemic in 1918 and 1919 was relatively short and sharp, as in Australia. This in contrast to World War I, which lasted four years and caused cumulative debilitating economic effects.

To conclude, Australia’s 1919 experience with the Spanish flu suggests that in terms of physical suffering and mortality, the impact of the 2020 coronavirus pandemic will get worse in Australia before it gets better. The 1919 experience does not suggest that the aggregated economic consequences of the pandemic will necessarily amount to an economic recession. The main reasons are that the 1919 pandemic did not paralyse the economy entirely and raged for just half of the year, after which economic activity resumed. The Australian economy of 2020 may be equally resilient.


Pierre van der Eng is Associate Professor of International Business at the ANU Research School of Management.

Updated:   2 April 2020 / Responsible Officer:  CBE Communications and Outreach / Page Contact:  College Web Team