COVID-19 economic recovery a question of when, how
While COVID-19 approaches its peak in the U.S., business leaders, economists and extroverts alike are struggling to get a clear view of what the recovery looks like and when it might happen.
First, the economy has to find the bottom. The Center for Financial Economics predicts an unemployment rate of 20 percent, but the St. Louis Fed says it could reach 32 percent, eclipsing the Great Depression. Sales continue to plummet, too.
According to NPD Group, overall retail sales were down nearly 30 percent by the end of March. In the first week of April, restaurant sales were down 41 percent compared to historic trends but flat with the prior weekly period.
While that could “indicate a bottom, we also need to be aware that further erosion could occur if consumers’ economic situations worsen,” said NPD food industry adviser David Portalatin.
Further damage is a real possibility as people eat up savings or if the $1,200 stimulus checks don’t go far enough to stop the bleeding. In all, the effect on GDP will likely be staggering.
Morgan Stanley predicts a 30 percent decline in GDP for the second quarter; McKinsey predicts a 24 percent decline. Both butt up against the Great Depression’s 26 percent overall decline.
What the recovery looks like is also a mystery, but hopefully it’s V-shaped, with the economy bouncing back as precipitously as it fell. Economists at the Economy Policy Institute predict a quick return to form because it’s not a structural loss of wealth like the Great Recession.
While people aren’t suddenly less wealthy like the Great Recession, a prolonged shutdown could have the same effect on the historically large surge in unemployment. If the equally historic $2.2 trillion stimulus falls flat or doesn’t make ends meet, the economy could struggle.
The V-shaped recovery is just one of nine potential outcomes outlined by McKinsey, and requires targeted economic help from legislative bodies and a successful slowdown of the disease.
If the virus can’t be controlled within two to three months and policy response is tepid, the consultancy says we could see something more like a choppy “W” or bumpy ramp toward recovery.