From Best Case Scenario To Worst, COVID-19 Will Deliver A Blow, Says New Forecast
How Much Of A Blow Is Yet To Be Seen
March 20, 2020 — Just how much of an impact the Novel Coronavirus (COVID-19) will have on the global, U.S., and California economies is a monstrously ominous and looming question now facing government leaders, businesses, and individuals around the world. The uncertainty surrounding the spread, containment, and recovery rates of the disease, and the extremely fast moving nature of daily events, makes estimating the direct economic impact of the pandemic close to impossible, according to a new forecast released today by Beacon Economics and the UCR School Business Center for Economic Forecasting.
“This is unprecedented in nature and by far the worst threat facing the U.S. economic expansion since it began over a decade ago,” said Christopher Thornberg, Founding Partner of Beacon Economics and Director of the Center for Forecasting. “Will it end the expansion for the year? Whatever the scenario, from best to worst, we are definitely going to see a serious hit in the first half of 2020.”
According to the new forecast, the sudden halt that has occurred in economic activity will cause unemployment claims to jump more quickly than ever before, slow home sales and business formation, reduce productivity, disrupt government revenue flows, and send ripples through the U.S. and global manufacturing base. “The U.S. economy is about to hit one big pothole,” said Thornberg.
Still, as unnerving and dramatic as these changes are, they may not lead to a recession this year – although the defining factor is whether the containment measures now being implemented across the globe are sufficient to slow the spread of the virus over the next few weeks. According to the forecast, if the extreme efforts are effective and the number of cases are kept in check, then lost output in the first half of the year could be partly made up in the second half.
The new forecast also emphasizes, however, that if the virus continues to spread and infects a substantial portion of the U.S. population, the economic disruptions will lengthen, and a recession would be likely although it is unclear how deep or damaging the contraction would be.
One of the biggest immediate risks, according to Thornberg, has been the hyperbolic actions of the financial markets. The frenzied drop in interest rates and equity prices could create a crisis where one does not need to exist—in financial liquidity. “For years the stock market has reacted hyper-excessively to non-economic events and concerns have intensified about what that means when a true crisis emerges,” said Thornberg. “The markets have taken on such a degree of volatility that they can create their own crises. Hopefully, when the pandemic passes, regulators will take a hard look at how financial markets are operating and consider rules and regulations that prevent these issues in the future.”
The new outlook also discusses potential impacts to California’s state economy.
View the full forecast for additional insights.
Beacon Economics is an independent economic research and consulting firm based in Los Angeles. The UCR School of Business Center for Economic Forecasting and Development is the first world class university forecasting center in the Inland Empire. Learn more at www.BeaconEcon.com and www.UCREconomicForecast.org.