Economists think the coronavirus recession will be short and sharp, followed by a rebound in the second half of the year. But it might not be quite that simple.
“Even allowing for a recovery in the second half of the year, we estimate that GDP growth for this year as a whole will be -5%,” said Paul Ashworth, chief US economist at Capital Economics, in a note.
He expects the economy wouldn’t see its true rebound until 2021, with 6.5% growth. “But there is tremendous uncertainty about exactly how bad the damage will be, not least because it depends on the growth in new infections,” Ashworth noted.
He anticipates a 40% annualized GDP drop in the second quarter, with the unemployment rate spiking to 12.5%.
Consumer spending, which is the backbone of the American economy, will fall by more than 40% annualized, Ashworth said. Although it is expected to rebound quickly after the pandemic is over, it could still take some time until it’s back at its previous rate. This year, consumption will contract by 5%, he said.
Ashworth did note that both the Federal Reserve and the government have reached deep into their toolboxes to support the economy, which will help the recovery.