The economy is in for tough times, but here's a roadmap for recovery from the coronavir... - 0 views
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Not for the next few months. The government still doesn’t know how widely the coronavirus has spread across America because of repeated snafus creating a test and it will take time to contain it. Until then large parts of the economy —schools, sports leagues, workplaces, cultural sites — are likely to remain shut down or operating on a limited basis.
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The economy could shrink as much as 4% to 5% in the second quarter and trigger a sharp increase in unemployment, according to the most pessimistic Wall Street forecasts. The last time that happened was during the 2007-2009 Great Recession.
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The vast majority of economists predict the U.S. will start to rebound later in the year, though they are split over how soon and how fast. Some like Donabedian see a rapid recovery starting in the summer. Others predict a short recession that extends through the fall.
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“There’s going to be a lot of bad news in the next three to four months,” said David Donabedian, chief investment officer of CIBC Private Wealth Management. “It will be pretty ugly. It is sure going to feel like a recession for awhile.”
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If the U.S. achieves the same success as say, South Korea, the hope is that spread of the coronavirus will taper off by early summer, when illnesses such as the flu and cold also tend to weaken because of the heat and humidity.
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“Some countries have proven that if you take precautionary measures such as social distancing you can get in front of this virus and contain it or at least slow it down,” said Sal Guatieri, senior economist at BMO Capital Markets.
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The Fed has already cut a key interest rate on March 3 and could reduce it to basically zero by next week. The lowest rates in modern times is already encouraging a fusillade of mortgage refinancings that will put more money in family’s pockets.
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Congress, for its part, is assembling what’s likely to be the first in a series of steps to cushion the blow to individuals and businesses most likely to suffer. A pending bill includes free testing, paid sick leave, emergency jobless benefits and small-business bridge loans.Economists says an overwhelming federal response is critical.
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Still, even relative optimists such as Guatieri say there’s still too much uncertainty to feel confident. He and Wells Fargo’s Bullard say their firms have been changing their forecasts almost daily in the past week as the situation deteriorated. What’s made matters worse is simply not knowing the scope of the problem
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“We’re not getting the insight into where we are or where we are going,” Bullard said. “So we’re all just speculating.”