The National Bureau of Economic Research (NBER), an organization known for determining recessions’ peaks and troughs, defines a recession as “a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in production, employment, real income, and other indicators”. Despite this definition, experts are unsure about whether or not we have reached that point. Some argue that we’re already there, while others say it’s too early to label it that. Regardless, of whether or not we’re currently there, a coronavirus induced recession seems imminent in the near future.

The statistics so far

In March alone, retail sales fell by 8.7%, total industrial production dropped by 5.4%, and housing starts plummeted a staggering 22.3%. Meanwhile, at the end of April’s first week, the four-week total of Americans filing for unemployment benefits reached 22 million people, essentially erasing the total amount of jobs created since the 2009 post-Great Recession recovery.

What can we expect from this recession?

Duke University economist Campbell Harvey believes that the recession will be “short, painful, and very different from any that have come before”. Like most experts, Harvey expects the recession to be different from previous ones in consequence of what triggered it. Rather than stemming from a financial situation, it was brought upon by a biological one. Experts also consider this recession to be unique because of its effect on firms. The longevity of decreased mobility and revenue is uncertain, but the expectation is that people who were recently unemployed will go back to their jobs once the pandemic subsides. The deciding factor will be how well small businesses, firms, and individuals can weather the period of decreased income and increasing debt. The government’s response during the next few weeks/months will be instrumental in determining the gravity of the recession and its aftermath.

What can we expect for its recovery?‍

In light of the recession’s nature, expert expectations diverge in regards to the length of the recovery period. Optimists, such as Donald Trump—claim that the economy will soar “like a rocket ship”—others are more wary. For instance, Morgan Stanley’s CEO, James Gorman, expects the coronavirus-induced recession to last until the end of 2021. Although he hopes that the recession’s recovery is “V” shaped, he believes that it will, in all likelihood, be “somewhere between a ‘U’ or ‘L’”. Like Gorman, Seth Carpenter—UBS’s chief US economist—also considers a “V” shaped recovery unlikely. In a similar manner, Campbell Harvey is not as optimistic as President Trump; he believes that business will not go back to normal as easily. He claims that peoples’ lost incomes, wealth and increased debt will most likely hamper spending in the future. Nonetheless, Harvey claims that the recession’s recovery period could be just as short as the recession itself; he believes that the recession’s recovery will be contingent upon policymakers’ ability to provide small businesses with the billions of dollars they promised them.

How to reduce the recession’s overall impact ?

The recession’s impact can be mitigated in a number of different ways. Amongst them, keeping as many small businesses and firms in business would be key. Economist Campbell Harvey highlights that the country’s best option may be the CARES Act—the $2 trillion stimulus bill signed into law on March 27. Harvey believes that the CARES Act still has to provide more funding. He supports this claim through the fact that other countries, such as Germany, are allocating more of their GDP towards their aid packages.

Moreover, speed is also vital towards reducing the recession’s effects. If policymakers don’t deploy funds quickly enough and/or if banks take too long in bridging loans to small businesses, firms will fail. Nobel-prize winning economist Robert Shiller also notes that once the economy starts improving, it is vital that people avoid fears over spending.

Why should we strive to reduce the recession’s impact?

We should strive to reduce the recession’s impact in light of its potential long-term toll. Typically, recessions bring about surges in unemployment rates and represent declines in production, consumption, investment, income levels and trade. Recessions tend to be characterized by devalued currencies, reduced asset prices, and increased government borrowing and inequality. So far, the coronavirus-induced recession has hit the U.S. economy by plummeting restaurant occupancy, halting airline flights, and propelling unemployment towards a record high numbers - 6.6 million people filed for unemployment in the week ended March 28th - this paced nearly 7.5 million small businesses at risk of shutting down.

Photo by kendall hoopes from Pexels

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