March 2020 Economic Forecasting Webinar
On March 25, 2020, AMT held its second webinar in the 2020 Economic Forecasting Series. This featured Gregory Daco, the Chief U.S. Economist for Oxford Economics. As one would expect, the coronavirus pandemic weighed heavily on the minds of the attendees and the presentation. Daco examined the effects of the coronavirus on the global economy and how U.S. actions or inactions would reverberate through the coming year.
The Economics of Fear meets the Economics of Sudden Stops. Daco opened the session with a rundown on the health concerns of the coronavirus, noting that the 3-4% mortality rate is probably skewed higher due to Italy’s high infection numbers and its older population being more susceptible to fatal infections. As the deadly virus spreads, he noted, it would shut down travel and tourism, erode confidence in the economy, and bring global supply chains to a halt.
Flatten the curve. In an effort to prevent healthcare systems worldwide from being overrun and their supplies being depleted, authorities have begun issuing orders to practice social distancing, self-quarantining, and self-isolating measures. By slowing the virus’ spread, medical providers hope to encounter a lighter flow of patients which would increase survival rates for patients and decrease infection rates among workers. However, this effectively shuts down a service-based economy like the United States’.
All’s fair in love and trade war. Daco pointed out that prior to the pandemic, U.S. economic policy uncertainty had risen at a consistent rate over the past 18 months due to issues surrounding the U.S.-China trade war. The tariffs imposed by the trade war have had deeply negative effects on the economy of not just the two countries but globally. Thankfully, the signing of Phase 1 of U.S.-China trade negotiations significantly improved global trade confidence, though tariffs on China remained very high. Additionally, the trade conflict brewing between the EU and the United States surrounding automobile tariffs continues.
The Lockdown Paradox. Without customers or people filling service-based jobs, many businesses face closure. Depending on the strategy to navigate the pandemic, the United States may see unprecedented damage to its workforce. 50% of the economy is at risk: housing, travel, transportation, and food and beverage. In terms of manufacturing, both the Philly Fed Business Outlook Survey and the Empire State Manufacturing Survey have recorded multi-year lows in manufacturing activity for March 2020; in fact, the Philly Fed recorded the biggest drop since 2009. Daco estimated that we may see upwards of 20 million lost jobs by the end of the recession. For comparison, the Great Recession in 2008 saw the demise of 8 million jobs. While fighting harder against the coronavirus by way of quarantine and lockdown procedures does create a deeper pit for the economy, these actions increase the speed in defeating the pandemic; as a result, we would reach our recovery period faster.
Good things come to those who wait… The recovery in 2021 should be quite robust. Various policies and packages recently voted into law will work to slow the economy’s descent, from issuing business loans to individual stimulus checks. The Fed has rapidly cut interest rates and enacted several measures to stimulate liquidity. Oil prices have gone down due to the Saudi – Russia oil war. In 2021, provided a vaccine is introduced, economic confidence should be restored. This, combined with pent-up demand, significant fiscal stimulus, and lower energy prices, should provide a strong and incredibly rapid lift for the economy.
The Economic Forecasting Webinar series will continue with sessions in May, June, August, September, and November. Sign up to avoid missing invaluable information and gain access to past sessions: https://www.cvent.com/c/express/206c3fa7-18a3-4afc-98a9-61f69e111dcf.