Could the Coronavirus Cause the Next Recession?

The longest economic expansion in U.S. history may be in jeopardy. In recent days, the chance of recession has gone up dramatically due to the coronavirus outbreak. As this deadly virus continues to spread, it has wreaked havoc on financial markets across the world. Could the Coronavirus lead to an economic downturn? It depends on the outcome of several key factors.

The Global Economy

The health of the U.S. economy is inextricably tied to the economies of other countries. Disruptions in countries like China can significantly impact the supply chain, slowing production and causing wide-scale product shortages. Given that all major countries now face this pandemic, there is a reasonably high chance that many economies will see decreased activity, thus impacting other countries that they conduct trade with.

Event Closures

In an abundance of caution, major sporting events like the Boston Marathon and March Madness have faced cancellation or postponement. Many entertainment-related industries have similarly put their businesses on hold, including amusement parks, concerts and Broadway shows. Even presidential campaigns have suspended public events until further notice. These cancellations translate into millions of dollars in lost revenue. This may lead to layoffs in many industries, which will further endanger the U.S. economy.

Consumer Behavior

Many experts and government officials have recommended something called “social distancing.” In a nutshell, this practice encourages people to minimize social gatherings and non-essential travel as much as possible. As a result, the airline and restaurant industries are beginning to experience a substantial drop in business. The steep stock market decline may also impact consumer behavior, as economic uncertainty can lead to reduced consumer spending.

The Length of the Outbreak

Without question, the coronavirus has led to large-scale economic repercussions across the entire world. The longer these disruptions continue, the more likely it is that economies worldwide will come to a grinding halt. If this global health crisis resolves quickly, many industries can return to business as usual in relatively short order. However, if the outbreak continues to spread for months or even years, the outlook for the economy could become quite bleak.

Recently, JP Morgan forecasted a recession in the U.S. and Europe by July (Winck, 2020). Other economists are equally gloomy. For example, Mark Zandi, the chief economist at Moody’s, projected that there is a 65% chance of an economic downturn (Gandel, 2020). While it’s impossible to predict the future, the current health crisis has undeniably raised the odds of a global recession.

This is not legal, financial or professional advice. Please consult a legal, financial or professional advisor for your specific situation.