The Best- and Worst-Case Forecasts for This Coronavirus Recession

Economic Forecasts

The Best- and Worst-Case Forecasts for This Coronavirus Recession

Here is a rough guide to how deep a decline we’re facing, and how the eventual recovery may unfold.

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A brutal recession is upon us as the effects of the public health crisis ripple across industries.

The best realistic scenario we can imagine: A GDP decline for the year of 4%, worse than the Great Recession. That assumes a relaxation of the various government restrictions on movement and business sometime in May (the earliest we can see) and a solid rebound in the second half of 2020.

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Unemployment is going to shoot up, to 12% or higher, the worst level that the U.S. has experienced since 1940. Consumer spending is heading for a cliff; we expect it to be down 30% in the second quarter of 2020.

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While a few categories, like groceries and home health care, will see gains, others, such as auto sales, restaurant meals and the like, will all but evaporate, down 60% or more. Business investment will drop by 20% in the second quarter as inventories are depleted and nonresidential construction screeches to a halt. Home building is a relative bright spot as most states are letting it go forward, with precautions to keep workers distanced from each other. Expect home sales to drop this spring but then soar when health fears subside.

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If the epidemic can be contained soon, and if the quarantines are relaxed, some parts of the economy could enjoy a strong recovery. Unemployment would come down more quickly than it did after the last recession, as businesses reopen. In that scenario, expect a jump in spending on certain goods and services after months of pent-up demand, especially by workers who held on to their jobs.

Housebound consumers will spend on household goods, clothes, and haircuts — everyday purchases that got put on hold. Durable goods like cars and appliances, big things people needed but didn’t feel comfortable buying when they were afraid of losing their jobs, should recover as well.

The spending that won’t bounce back quickly, due to lingering infection risks: dining out, travel and any sort of entertainment or recreation involving crowds.

SEE ALSO: All of Kiplinger’s Economic Outlooks

Overall, don’t expect a sudden recovery. Businesses and consumers alike are going to be careful about spending. Social distancing is likely to remain common even after the worst of the virus passes, especially given the shortage of face masks.

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And remember, this is the best case. Keep this gloomier possibility in mind: A second wave of infections if the country tries to go back to normal too soon. Hopefully, widespread virus testing and other medical advances will prevent that. But if infections and deaths jump again after the situation seems to be under control, the resulting blow to the economy could rival the worst years of the Great Depression.

SEE ALSO: 12 Ways COVID-19 Will Change the Tech Industry