The Coming Coronavirus Recession
And the Uncharted Territory Beyond
The global economy will go into recession this year. The downturn will be sudden and sharp. And although a constructive response from policymakers, companies, and households could limit its duration, its effects will be felt for decades to come.
Most economic forecasts for 2020 predicted a year of steady if not rising growth. The International Monetary Fund’s January forecast update saw growth picking up from 2.9 percent in 2019 to 3.3 percent in 2020. And there were plenty of reasons to be optimistic: the “Phase One” trade agreement between China and the United States, the reduction of Brexit-related uncertainties, and strong consumer spending, especially in the United States and Germany, which seemed likely to spur companies to proceed with delayed investment plans.
Then came the novel coronavirus. With the economic shock of the health crisis spreading around the world, economists are scrambling to revise their projections. The Organization for Economic Cooperation and Development recently slashed its forecast for 2020 growth by half, from 2.9 percent to 1.5 percent, and the IMF has signaled that it will issue a significant revision soon. But even this first round of revisions may have been too optimistic, since they incorporated the widely held (but incorrect) assumption that the recovery would follow a sharp V-like pattern—a first-quarter hit that is immediately offset in the second quarter. With growing recognition that a U-shaped recovery is more likely, forecasts will need to be revised down again, and revised down sharply. They will also have to take more seriously the risk of an L or even an I—that is, a market that remains flat or in free fall for some time—if severe financial dislocations end up adding to the global economy’s woes.
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Πηγή: foreignaffairs.com
