There will be a lot of anger when the economic “recovery” after house arrest is lifted doesn’t live up to its billing, and that anger is going to be directed somewhere. From Scott Minerd at guggenheiminvestments.com:
To think that the economy is going to reaccelerate in the third quarter in a V-shaped recovery to the level where gross domestic product (GDP) was prior to the pandemic is unrealistic. Four years from now the economy will most likely recover to the same level of activity that it was in January.
The Economic Recovery Is Unlikely To Be V-Shaped
Source: Guggenheim Investments, Haver Analytics, CBO. Actual data as of 12.31.2019.
As this realization becomes clearer, we will be nearing the era of recrimination. Monetary and fiscal policymakers are pulling out all the stops to keep the economy and citizenry afloat during this crisis. Now is too early to determine the efficacy and durability of these crisis programs, but ultimately we will likely discover that they are insufficient, misdirected, and full of unintended consequences. Let the finger-pointing begin.
The recovery will be disappointing for several reasons. First, the end of the lockdown period is not absolute. Restrictions will only be lifted gradually, and with health experts seeing a strong chance of future waves of infections. According to a recent Harvard study, we will likely see rolling periods of lockdown going into 2022. Second, the jobs picture will not bounce back. Over 26 million people have applied for unemployment benefits in the last five weeks, more than all the total net jobs created in the 10 years of the prior economic expansion. Many of these people will not immediately be going back to work, even if the economy fully reopens by summer, which is probably unrealistic. The unemployment rate will probably spike to around 20 percent, maybe as high as 30 percent. By the end of the year the unemployment rate could still be in double digits, and then begins the long haul to get back to unemployment levels that we saw prior to the downturn. It took nearly 10 years for the unemployment rate to return to levels we saw before the Global Financial Crisis, and this labor market shock will likely be between three and five times more severe.
