COVID-19 and Economic Growth

The coronavirus (COVID-19) is having an impact on economic growth in Iowa. The Bureau of Economic Analysis (BEA) released Gross Domestic Product (GDP) by state from the fourth quarter of 2019 to the first quarter of 2020, which demonstrates some of the economic impact of COVID-19. During this time Iowa’s economy declined by -3.5 percent. Other than Nebraska and South Dakota, Iowa’s economy shrank less than our neighbors.



Yet, COVID-19 continues to put Iowa and the national economy in a vise grip. When the pandemic broke out, Iowa responded by practicing strict social distancing, which forced many businesses to close. The shutdown resulted in skyrocketing unemployment in Iowa. Although Iowa’s economy has re-opened, unemployment remains at 8 percent.


Even though the economy is open, many consumers are still concerned about returning to normal activities with the ongoing threat of the virus. In addition, because of social distancing policies, many small businesses in Iowa are still operating at half or less capacity. How long can  businesses afford operate at this rate?


Fear of a second wave is also weighing like an albatross on the economy. The economy is sending mixed signals with fears of a double-dip recession as consumers are cautious and many businesses looking at potential layoffs. It is clear that Iowa or the nation cannot afford another economic shutdown.


Dr. Ernie Goss, MacAllister Chair in Regional Economics at Creighton University, and Mr. Scott Strain, M.S., who is a Senior Economist with Goss & Associates estimate that, due to COVID-19,  Iowa’s GDP could be reduced by 5.1 percent in 2020.  Prior to pandemic Iowa was already struggling with slow economic growth. From 2018-2019, Iowa’s economy grew only 0.9 percent.


With all the COVID-19 uncertainty, how can Iowa create economic growth and weather an economic downturn?


  • Hold the line on government spending: Fortunately, prior to the COVID-19 recession, Iowa’s economy and budget was in a strong position. Iowa had $800 million in reserves and a surplus of nearly $400 million. Prudent budgeting by the Iowa legislature and Governor Kim Reynolds will help cushion the economic impact of the virus. During this past legislative session, the legislature passed a $7.78 billion budget, which held the line on spending.Iowa has also received $2.8 billion (including $1.25 billion from CARES Act) in federal stimulus aid. All of this will lessen the economic impact of COVID-19 on Iowa’s economy. Congress is also considering another round of economic stimulus.


  • Avoid raising taxes: COVID-19 has resulted in revenue uncertainty. This is one reason why the legislature enacted a conservative budget. It will be tempting for governments to try and increase taxes to fill revenue shortfalls, but tax increases will destroy an economic recovery. Iowans are suffering enough from the pandemic and they should not be punished with higher taxes.


  • Encourage innovation: Iowa should continue to work toward limiting regulations that discourage work and entrepreneurship. During the past legislative session, the legislature passed occupational licensing reform, which will ensure that less roadblocks stand in the way for individuals trying to earn a living in Iowa. Unshackling Iowa’s economy from regulation will encourage both innovation and entrepreneurship.


At this time, it is difficult to determine what type of an economic recovery Iowa will have. The outcome may hinge dramatically on federal policy. If Congress increases taxes and regulations on the economy it will result in a massive setback. Nevertheless, Iowa needs to be prepared to focus on policies that lead to economic growth. Keeping spending low, avoiding tax increases, and regulatory relief are policies that will help grow Iowa’s economy.