Don’t expect a strong rebound in the economy or an end to the volatility in financial markets until proven treatments are available for COVID-19, followed by an effective vaccine that can be distributed widely, which is not likely before next year.
That is the dominant view among many economists and strategists despite the Trump administration’s hopes to begin to reopen the economy as early as next month and the massive fiscal and monetary support that has come from the federal government and the Federal Reserve.
The downturn “will last as long as health issues remain in place,” says Michael Geraghty, equity strategist at Cornerstone Capital.
“Better to be patient and cautious, and only restart when it is clear that new infections are declining and testing is sufficiently widespread that new infections can be traced and quarantined,” says Mark Zandi, chief economist at Moody’s Analytics. “The lockdowns have been economically painful, but successful in containing the virus, and it would be a grievous error to open up prematurely and reignite the infections and be forced to lock down again.”
The pain that the lockdowns have caused is apparent in the forecasts for GDP among economists.
David Kelly, chief global strategist at J.P. Morgan Asset Management, expects that U.S. GDP will decline by roughly 5% on an annualized basis in the first quarter followed by a 25% annualized drop in the second, and he’s not even the most pessimistic among economists. Kelly’s outlook forecasts a 7.8% decline in the U.S. economy for 2020, which he says correlates to the worst recession since the Great Depression.
Kelly doesn’t expect a strong recovery until the second half of 2021, after a vaccine is available and distributed widely enough to inoculate 95% of the American public, which will take months. “Relatively normal earnings” could return by 2022, according to Kelly.