Forget Swooshes and V’s. The Economy’s Future Is a Question Mark.
The Check, the Swoosh and the Wave
The Congressional Budget Office’s baseline expectation suggests that growth will contract slightly in the first quarter and sharply in the second quarter before making a gradual rebound starting in the quarter that stretches from the start of July to the end of September. The budget office doesn’t label the shape, because the climb back will be slower than the drop. The trajectory looks like a checkmark on a graph.
There are big uncertainties around that forecast. Additional waves of infection, variations in consumer behavior and the timeline for a vaccine are all wild cards that could change the path ahead. A host of risks could lead to worse outcomes, while a vaccine breakthrough or unexpected government support for the economy could improve the trajectory.
If a quicker recovery takes hold, the rebound could look more like a “swoosh” as growth improves slowly before accelerating. But if more infections occur and a vaccine remains elusive, the economy could also face a “wave” recovery of repeating peaks and troughs as states continually reopen and then pull back.
So which is most likely?
“We’re all prefacing what we say with: We’re not epidemiologists,” said Mr. O’Sullivan, explaining that the range of possible economic outcomes is unusually wide because it turns so much on what happens with public health. Because it’s a new coronavirus, and a totally unusual shock to the economy, nobody’s guess for what comes next is especially reliable.
Even the Fed’s economists, never shy to to set out a forecast, have sounded uncertain. Minutes from the central bank’s late-April meeting show that staff offered a baseline forecast in which shutdowns gradually ease and growth resumes into the second half of the year, but warned that “a more pessimistic projection was no less plausible than the baseline forecast.”
Fed policymakers, for their part, “discussed several alternative scenarios with regard to the behavior of economic activity in the medium term that all seemed about equally likely,” according to the minutes. Among them were predictions that the country experienced additional outbreaks and shutdowns (a W or a wave), and more optimistic situations in which social distancing measures were successfully relaxed (a check or a swoosh).
Richard Clarida, the Fed’s vice chairman, said last week that it could take until early autumn to get more clarity on where the economy is headed.
To put it bluntly, as Ian Shepherdson at Pantheon Macroeconomics did in a recent research note, “the timing of a full recovery is unknowable.”
Jim Tankersley contributed reporting.
Article source: https://www.nytimes.com/2020/05/29/business/economy/economy-recovery-forecast-coronavirus.html