Economists Warn Recession Recovery Will Be Slow

The coronavirus pandemic has triggered the biggest drop in the U.S. economy since the Great Recession, and economists are warning that the worst is yet to come.

“The virus has done a lot of damage to the economy, and there is just so much uncertainty now,” Mark Zandi, chief economist at Moody’s Analytics, told the Associated Press (AP) on Wednesday (April 29).

The gross domestic product (GDP) plummeted 4.8 percent in the first quarter of 2020, and Federal Reserve Chairman Jay Powell said the second quarter will be worse even as some states ease restrictions and some businesses reopen.

“We are going to see economic data for the second quarter that is worse than any data we have seen for the economy,” Powell said following a press conference on interest rates. “There are direct consequences of the disease and measures we are taking to protect ourselves from it.”

One of the chief concerns among economists is the possibility of a resurgence of COVID-19 cases as the country goes back to business. Another is that contagion fears could prompt people to be particularly cautious and the return to normal will be anything but, stifling true economic recovery.

The Congressional Budget Office has estimated that the April-June quarter will free fall at a 40 percent annual rate. It could be four times the worst contraction on record in 1958.

That would be, by a breathtaking margin, the bleakest quarter since such records were first compiled in 1947.

“The longer consumers are stuck at home and workers can’t get to their jobs, the greater the structural damage to the U.S. economy — permanent loss of household income, permanent business closures, permanent job losses, reduced business investment — which would prevent a strong rebound,” Gus Faucher, chief economist at PNC Financial Services Group, told the AP.

The Fed said short-term interest rates will remain at near zero and support would continue.

“It may well be the case that the economy will need further support from all of us if the recovery is to be a strong one,” Powell said.

“It is heartbreaking, frankly, to see that all threatened now,” Powell said. “All the more need for our urgent response and also that of Congress, which has been urgent and large, and to do what we can to avoid longer run damage to the economy.”

Some 25 percent of American businesses have gone dark due to the coronavirus pandemic. An analysis by Moody’s Analytics showed that 8 in 10 counties are locked down and represent almost 96 percent of the entire country’s output.