What is the Timeline for Economic Recovery?
April 30, 2020
We know there will be an economic recovery, but we also want to know what’s the timeline for recovery. Recently we posted about how experts are projecting a quick V-shaped recovery due to Covid-19. Thankfully, there is research from previous pandemics to support these conclusions.
We also discussed how some in the business community are concerned about a more U-shaped recovery if consumers return to normal spending slowly. Their analysis expects previous economic successes won’t return until sometime next year. Last week, Reuters conducted a poll on US and European economists revealing that most are leaning toward a more U-shaped recovery.
This graphic depicts the results of that poll:
What about the Fed?
Another factor that economists continue to monitor is the Fed’s involvement in an economic recovery. In response to the coronavirus, the Fed has begun to increase its balance sheet with unprecedented increases. Two weeks ago, their balance increased by $6.42 trillion, nearly one-third of US GDP pre-crisis. In early March, just before massive shutdowns, the Fed raised its holdings $4.29 trillion, simultaneously cutting rates, leading to a wave of pre-shutdown refinances. Current projections expect the Fed to grow its holdings up to $10 trillion before 2020 is over.
Why the differences between economic experts?
The nature of the current situation based on the coronavirus, compounded with wide ranges of governmental responses, make predicting economic recovery difficult. Analysts would normally look at economic data and compare it to previous slowdowns to create a current projection. Unfortunately, that is a very difficult proposal in today’s situation.
Most economic analyists are relying on one of three different sources for their economic recovery equation:
1. Business Science – How has the economy rebounded from similar slowdowns in the past?
2. Health Science – When will Covid-19 be under control? Will there be another flare-up that dramatically impacts society again?
3. Social Science – After businesses return to normal operations, how long will it take Americans to return to normal levels of consumption?
The difficulty in putting all of these pieces into an accurate economic model is why experts are divided. Economists remain divided over the timeline to full economic recovery. Current expectations are anywhere from 6-18 months. The one thing they do agree on, is that we will have recovery.