WASHINGTON — As projections of the coronavirus death toll soar, forecasts for the ensuing economic carnage have also quickly turned much darker — both for the depth and duration of the damage.
Where only days ago, economists were following President Donald Trump’s lead in saying the U.S. economy would be back on track relatively quickly, a growing number now say the downturn will likely exceed the Great Recession of 2008-09.
U.S. economic output, which has grown without interruption for a record 10.5 years, could fall as much as 9% in 2020 — more than three times the sharpest drop during the Great Recession, according to some predictions. At the height of the Great Depression in 1932, the economy shrank a record 12.9%.
“This is the dilemma of the disease and of the economy. To limit and control the disease you basically have to kill the economy. It’s a trade-off,” said Nariman Behravesh, chief economist at IHS Markit. The research firm doesn’t see an economic return to pre-pandemic levels for two to three years. This is the dilemma of the disease and the economy. To limit and control the disease you basically have to kill the economy. It’s a trade-off.Nairman Behravesh, chief economist at IHS Markit
Janet Yellen, a former chairwoman of the Federal Reserve and now a distinguished fellow at the Brookings Institution, echoed the growing skepticism over what Trump and others have said would be a quick economic rebound once the virus subsides.
Pointing to how long it took to recover from past crises, she said it’s common for economic growth to remain on a lower track for years, not months.
“If firms are really damaged and cut back their investment spending on R&D dramatically, or workers become deskilled or lose productive connections to firms, those things can have long-lasting effects,” Yellen said during an online conference this week.
Global supply chains, which when they were functioning well had raised productivity and profits for many companies, are now facing significant disruptions, and there is a broad reconsideration of these economic linkages that could further slow growth, she said.
The current Fed leader, Jerome H. Powell, acknowledged the grim outlook while trying to remain optimistic about a relatively quick recovery.
“You may well see significant rises in unemployment and significant declines in economic activity, but there can also be a good rebound on the other side of that,” he said in a rare television appearance last week.
“It will really depend on the spread of the virus. The virus is going to dictate the timetable here,” he said.
Powell’s remark about the coronavirus calling the shots reflects a new awareness in Washington and beyond that the medical threat is far more serious than many originally suggested and that comparing COVID-19 to seasonal flu was dangerously misleading.
Within that scientific reality, medical experts and economists agree that the best hope for the least and shortest damage is a painful but increasingly tight adherence to the strategy of social distancing. That is, choking back physical contact between individuals and groups — using lockdowns and the mandatory closing of restaurants, bars, sports and entertainment venues and other places where more than a handful of people come together at one time.
The economic impact of social distancing — and the far greater potential cost of not embracing it — are reflected in the increasingly dark economic forecasts.
