The coronavirus is guaranteed to throw the world into recession, but economists are becoming less convinced about the potential for a strong snapback in growth.
The base case for forecasters is that a recovery, perhaps even a vigorous one, gets under way in the second half of 2020. But as the pandemic spreads through Europe and the Americas, and the wide range of knock-on effects comes into clearer view, caveats to that call are piling up.
Underlying all of them is the simple fact that economic outcomes hinge on something that’s beyond the professional competence of most economists to forecast: the trajectory of the disease itself.
“We have no certainty the virus will be gone by the end of the second quarter,” said Nobel prizewinner Joseph Stiglitz, a professor at Columbia University in New York. If it “lasts through the summer, then all the effects will be amplified.”
Beyond that, there is an array of questions for economists to grapple with -- and those doubts increasingly undermine projections for what’s known as a “V-shaped recovery,” in which lost output is quickly restored.
Rather than sounding a decisive “all clear,” health authorities seem likely to advocate a gradual return to normal working life, so the behavior known as “social distancing” may stick around.
Along with financial blows sustained during the downturn, that is likely to damp spending on travel or spending at shops or restaurants -- assuming those businesses can stay afloat in the first place.
“It takes more time to get ‘back to play’ than to ‘get back to work’,” said Catherine Mann, chief economist at Citigroup Inc. This “underpins concerns for the trajectory for services-dependent advanced economies in the second half of 2020,” she said.
Consumer caution is already evident in China, even though authorities say it’s safe to go back into the marketplace, and it could happen elsewhere.
That’s why Mark Zandi, chief economist at Moody’s Analytics, likens his forecast to a “Nike swoosh” rather than a V- or U-shaped rebound. He says U.S. output alone could plunge at an annualized pace of as much as 25% in the second quarter, bounce back by up to 15% in the third, then stall in the fourth with the economy “basically limping along.”