‘Some biz models won’t survive after Covid’
wASHINGTON, D. C.: Some types of businesses may not be able to survive in the post-pandemic world even after the American economy recovers from the coronavirus disease 2019 (Covid-19), the US Federal Reserve (Fed) said on Wednesday (Thursday in Manila).
Defeating Covid- 19 is the key factor in restoring the world’s largest economy, but some of the damage may persist, especially if consumers remain reluctant to return to normal activities, Fed officials said in the minutes of their policy meeting held late last month.
They “expressed concerns that a large number of small businesses may not be able to endure a shock that had long- lasting financial effects.”
And they worried that “even after social- distancing requirements were eased, some business models may no longer be economically viable,” especially if consumers decide to “avoid participating in particular forms of economic activity.”
With over 90,000 deaths from the coronavirus and data showing more than 30 million jobs destroyed, at least temporarily, the central bankers said the US economy would see an “unprecedented” decline in the second quarter as the country’s unemployment rate rises to its highest level in the post- World War 2 period.
Fed Chairman Jerome Powell said this week that gross domestic product could “easily” contract by 20 to 30 percent, while the unemployment rate could spike to 25 percent.
Restaurants, theaters and sporting venues are particularly vulnerable, since they count on packing in large crowds — exactly the kind of behavior many people will want to avoid, especially if economic reopening leads to another flare up in coronavirus cases.
The Fed officials said that, “in addition to weighing heavily on economic activity in the near term, the economic effects of the pandemic created an extraordinary amount of uncertainty and considerable risks to economic activity in the medium term.”
They raised concerns that “temporary layoffs could become permanent,” and that “the possibility of secondary outbreaks of the virus may cause businesses for some time to be reluctant to engage in new projects, rehire workers, or make new capital expenditures,” minutes of the April 28 and 29 meeting said.
Programs rushed out by the Fed and the US Congress, including expanded unemployment insurance and the Paycheck Protection Program, which provides forgivable loans to small businesses, seemed to be cushioning the blow.
“Participants acknowledged that even greater fiscal support may be necessary if the economic downturn persists,” the central bank officials said.
Congress approved $ 3 trillion in relief measures, but another $ 3- trillion package approved by the Democratic- led House of Representatives faces opposition from Republicans worried about the cost of the programs.