Alaska economists say containing the virus is critical for the state’s long-term outlook

The streets of downtown Anchorage were uncharacteristically empty on Thursday, March 19, 2020. Earlier in the week, the city saw the mandated closure of dine-in service at restaurants, bars and breweries. Gyms, theaters and bingo halls were also closed. The state is trying to curb the spread of coronavirus. (Abbey Collins/Alaska Public Media)

Much of Alaska’s economy is at a standstill, as state leaders work to slow the spread of the coronavirus. People are staying home. Many businesses have closed or greatly reduced operations. Thousands of people are out of work.

New estimates show the economic impact of the COVID-19 pandemic will be big – and it could be huge. Estimates show the state could lose up to 50,000 jobs if closures drag on. And, the value of goods and services produced in the state could be reduced by billions of dollars.

RELATED: Listen to our podcast, Hunker Down Alaska, about how people are coping around the state.

“People may interpret economic decline, or projected economic decline as meaning we should reopen the economy and we should send people back to work,” said Mouhcine Guettabi, an economist at the University of Alaska’s Institute of Social and Economic Research. “Which I think is the wrong takeaway.”

Last month, Gov. Mike Dunleavy mandated the closure of dine-in service at restaurants and bars. And, non-essential businesses are closed.

While these closures have resulted in widespread job loss, Guettabi says containing the virus is critical. Essentially, these short-term impacts are poised to be big. But, Guettabi says, the state’s long-term economic health depends on getting the virus under control.

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On March 27, Guettabi published research that estimates the size of economic impacts from the pandemic. His calculations are based on business closures persisting for the next few months.

“The numbers are not really surprising,” said Guettabi. “They’re big and they’re ugly, and that is to be expected. Because essentially we’re freezing economic activity. The question now is, how significant is the response to this freezing?”

In April – the first full month of closures – Guettabi estimates the state will lose 27,000 jobs, compared to April 2019. That adds up to $79 million in lost wages.

If people aren’t getting paid, they’re less likely to put money back into the economy.

“And so if you were to potentially follow the money, how many indirect jobs could potentially be lost, or what is the ripple effect of this first round of layoffs? The numbers get uglier in that you find that there could be another 20,000 people laid off if this were to potentially last another three months,” said Guettabi.

Guettabi says, the scale of relief efforts need to match those losses.

“States, federal government, needs to be as aggressive as possible, so that when the virus gets contained, the households, the businesses are at least kept whole–or at least as whole as possible so that slowly spending patterns and travel can start resuming,” said Guettabi.

The Dunleavy Administration says it’s making progress on an economic stabilization plan. On the federal level, President Trump signed a $2 trillion aid package last month.

Beyond immediate impacts, Guettabi say there’s also a question of how will the state and federal government will help businesses that depend on summer tourism.

“One of the question marks is how will Alaska as a state and how will the federal government deal with businesses that are potentially not currently experiencing losses, or are experiencing relatively small losses, but will miss out on their whole season in three or four months, even if the economy is potentially reopened by then,” said Geuttabi.

Guettabi also looks at the potential impact on the state’s gross domestic product, or GDP. That’s the value of goods and services produced in the state. He says, impacts from the virus could result in a second quarter GDP that is $2 billion less than it would have been if we weren’t in the middle of a pandemic.

“And if you again, assume that these losses are going to last for a while and there will be these knock-on effects, then there could be another $2 billion of GDP loss,” said Guettabi. “Because the businesses that are being effected, they’re not buying from their suppliers and they’re not spending the money they would have been spending.”

Guettabi says once the virus is contained, it’s still going to take a long time for the economy to recover. He says the economy isn’t like a faucet – you can’t just turn it back on and expect the water to flow as usual.

“It’s not like people are just going to go out and start spending money,” said Guettabi. “I think this is one of the times that the aid package at the federal level and whatever air packages will get passed at the state level are going to help people get through this period of time.”

There are a few important things that Guettabi’s calculations don’t account for. These numbers represent potential losses in the absence of government relief. So, the numbers might not be so big, depending on the scale of state and federal assistance.

On the flip side, this report also does not account for the negative impact of low oil prices.