San Diego Union-Tribune (Sunday)
IS A RECESSION ON THE HORIZON?
Our panel of economists and executives give their take on March 13 as the coronavirus panic started to set in.
ECONOMISTS YES
Travel, entertainment, retail, and other major sectors of the U.S. economy are already struggling to cope with drastic drops in demand. Energy companies are being negatively impacted by the collapse in oil prices. Monetary policy will not be very effective in countering the supply shock arising from the pandemic. Given these conditions, it seems highly likely that the U.S., along with many trading partners, will have a recession in the next 12 months.
YES
Both J.P. Morgan and Deutsche Bank are forecasting double-digit annualized percentage declines in U.S. GDP for the 2nd quarter of 2020. The initial concern was the disruption of supply chains due to Chinese factories shutting down. But now, whole parts of the U.S. economy are shutting down, which reduces income and curtails economic activity. The crash in the stock market would normally cause worries of a reverse wealth effect, but spending is going to be reduced anyway with businesses closing.
YES
This is beginning to look like a Trump Coronarecession. It’s not inevitable, but increasingly likely that the U.S. will reach the technical definition of a recession (two successive quarters of negative GDP). Regardless, we are now entrenched in a practical recession, with traumatic disruptions in our economy. Once over, it will take some time to dig out. Sadly, the level of trauma was avoidable had the government adequately prepared late last year when it became increasingly evident that the virus would visit us.
YES
With large consumer spending cuts already evident and business investment declines expected, the downturn will be sharp and widespread. The only question is how long it lasts. The 1918 recession, due largely to the Spanish Flu, lasted seven months and this decline might be similar. What started as Chinese supply disruptions has now moved to major demand reductions. Hopefully, financial damage will be contained. Better news will eventually come, but more economic damage lies ahead.
EXECUTIVES YES
By the time we declare victory over the coronavirus, the U.S. economy will be in a recession. As we all know it was just a matter of time before this wonderful economic streak would end, we just didn’t know what would cause it. The good news is that when we do control the outbreak there is no reason for the U.S. economy not to rebound very quickly. Think all the Disneyland parks open and thousands of past employees go back to work. Our last recession was caused by structural and ethical deficiencies — this time it’s a curable illness.
NO
But it’ll be close. We’re in uncharted territory with much uncertainty and that’s breeding fear. Our political leaders must also work together to quickly mitigate any economic damage. UCLA’S revised economic forecast has predicted (if the pandemic ends in the summer and global supply chains are restored) the resumption of normal economic activity and growth by the 4th quarter. The market has shown much volatility and yet been remarkably resilient. We should do our part by supporting our businesses and reducing fear-based decision making.
YES
With the uncertainty around global production, demand, trade, and travel, financial markets are clearly scared. Even drastic moves by the Fed have been ineffective (debatably, we have played that card too often in recent years). Although we are likely seeing the start of a recession, remember the pandemic will subside. Markets may take longer, but will also eventually recover. Be smart, stay safe, but try not to panic.
YES
It is clear that COVID-19 has dealt a major blow to Q1 and Q2 this year and will put us in a technical recession. Unemployment will jump, companies will seek help for survival and we are fortunate that the economy was so strong going in. While this year was positioned to set a record for length of a bull market and positive GDP growth, this virus has sent shock waves that have destroyed the economy.