When will the US economy recover from the coronavirus? Financial experts weigh in
Financial experts haven’t shied away from saying it: COVID-19 has ransacked the U.S. economy.
Unemployment numbers have skyrocketed, an executive at Tyson Foods cautioned the entire “food supply chain is breaking” and a vaccine is still months away.
As states begin rolling back stay-at-home orders and businesses reopen, how soon can we expect a recovery? There’s a range of predictions — from one year to 10 — but forecasters agree it will be slow going.
“I think we need to prepare for a more gradual recovery while we hope for that quicker rebound,” Minneapolis Federal Reserve Bank President Neel Kashkari said during an interview on NBC’s ”Today” show.
The U.S. is not, however, likely “headed for another Great Depression,” he said.
What’s happening now
In the short term, experts expect unemployment figures to continue climbing. The unemployment rate reached 14.7% in April — but the government cautioned it could be closer to 19.5%, Reuters reported.
Unemployment peaked at 25% during the Great Depression and 10% during the Great Recession.
GDP — which measures the total value of a country’s goods and services and is a good indicator of its economic output, Vox reported — is expected to slip 12% in the second quarter and about 5.6% for the calendar year, according to an April report by the Congressional Budget Office.
The current quarter is projected to be the year’s weakest, “followed by a rebound in the second half of the year,” ThinkAdvisor said of the CBO report.
An economic outlook report by the PNC Financial Services group echoes that projection.
“PNC expects the U.S. economy to contract by almost 10 percent unannualized in the first half of this year,” the report states. “To put this in perspective, the U.S. economy contracted by 4.0 percent during the Great Recession, over a much longer period of time (two quarters versus six).”
Assuming the rest of the country’s stay-at-home orders are gradually lifted in the coming months, PNC predicts “economic recovery should begin in the second half of 2020.”
But it won’t be a simple flick of the switch.
Long-term recovery
J.P. Morgan Chief Investment Officer Bob Michele told Bloomberg it could take 10 to 12 years to get the U.S. economy to its pre-pandemic levels, Mediaite reported.
“When you look at the Congressional Budget Office forecast for the end of 2021, they have unemployment at 9 percent, so sure, materially better than where we’re going to peak in the high teens. But during the peak of the financial crisis, unemployment hit 10 percent,” he said. “So even looking out a year and a half from now, we’re still going to be roughly where we were at the peak of the financial crisis.”
Back in March, Deloitte Insights published a report that explored the “economic consequences” of the novel coronavirus on the U.S. — something economists refer to as an “external shock.”
The report laid out three possible scenarios for the economy to follow after COVID-19: a recession, a financial crisis and deep recession, or a “long hard trek to recovery.”
Deloitte predicted each scenario had a probability of 50%, 30% or 20%, respectively, depending upon what path the pandemic took and how soon people can get back to their regular business.
Under the first two scenarios in which the outbreak “begins to recede” by early May, the accounting organization reported the economy could be headed for recovery by early to mid- 2021, with a “strong recovery” by 2022 in the latter prediction.
But if regional outbreaks of the coronavirus continue for a year or longer with accompanying interruptions in local economies and overall slow growth elsewhere, Deloitte predicted recovery could take more time.
“After falling substantially in 2020, GDP is flat in 2021, and unemployment remains high,” the report predicts. “Growth then picks up to 3% or more by 2023 and remains high for another year because of pent-up demand for big-ticket items, combined with very accommodative monetary and fiscal policy.”
In the meantime, Jason Furman, an economist and professor at Harvard Kennedy School, told CNBC the U.S. is in “a medically induced coma” — the likes of which we’ve never seen before.
“Economists are not at all confident,” he said.
If the U.S. is hit with a financial crisis and a recession, Furman told CNBC it could take “five to 10 years for the economy to return to normal.”
This story was originally published May 8, 2020 at 3:28 PM with the headline "When will the US economy recover from the coronavirus? Financial experts weigh in."
