As coronavirus spreads, recession increasingly likely, economists warn
The global financial rout showed no signs of slowing on Friday
The U.S. and world economies look increasingly likely to fall into a recession as the coronavirus pandemic causes swaths of major shutdowns across the globe and sent financial markets tumbling, with the Dow Jones Industrial Average suffering its worst day since 1987.
Despite efforts by central banks to bolster the economy, an $8.3 billion package of emergency funding by the Trump administration and a nearing agreement between Congress and the White House to pass another round of fiscal stimulus aimed at helping workers and companies, the global financial rout showed no signs of slowing on Friday.
Although U.S. equity markets opened higher on Friday following a historic day of losses -- the Dow fell nearly 10 percent, while the S&P 500 and Nasdaq Composite joined it in bear territory -- the indexes gave up the bulk of their gains amid reports that President Trump plans to declare a national emergency, a move that will speed up federal assistance.
WHAT TRIGGERS AN ECONOMIC RECESSION?
“We are going into a global recession. The necessary measures to contain the spread of the virus make that unavoidable,” Vítor Constâncio, a former vice president of the European Central Bank, said on Twitter Thursday.
The Institute of International Finance forecast the global economy will grow about 1 percent this year, the smallest gain since the financial crisis, According to The Wall Street Journal. That level would likely mean many countries would fall into recession.
It’s been more than a decade since the U.S. economy experienced a recession, making the 11-year expansion officially the longest on record.
To be loosely defined as a recession, a country needs two consecutive quarters of declines in real GDP, the broadest gauge of growth. The National Bureau of Economic Research, a private organization of economists, describes it as “significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales."
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“Yes, there will be economic disruption and an all-but-certain recession,” said Greg McBride, chief financial analyst at Bankrate. “Markets will undoubtedly overshoot to the downside, so it is more important than ever for investors to maintain their long-term perspective.”
On average, recessions since the end of World War II have ranged anywhere from six months to 16 months for an average of about 11 months, according to NBER data. At 18 months, the 2008 financial crisis was an anomaly. (Not including it, the average falls to about 10.4 months). The Great Depression, which began in 1929 and ended in 1933, was a staggering 45 months long.
Industries at the ground level, like cruise ships, international tourism, hotels and airlines are expected to take a hit from the outbreak, along with companies that depend on China, which responded to the outbreak by clamping down on manufacturers and shuttering factories, for its supply chain.
"Economists may look back and discover that we entered the recession on Feb. 21, the day the stock market started falling,” said Andrew Challenger, vice president of global outplace at Challenger, Gray & Christmas Inc. “The catalyst for the recession: the impact of the coronavirus on the global economy.”
Still, the number of Americans filing new claims for unemployment insurance fell last week for the second time in a row, suggesting the labor market has not been impacted in a major way. The Labor Department said Thursday that applications for unemployment benefits dropped by 4,000 last week to a seasonally adjusted 211,000. Economists are watching the jobless claims, typically a good indicator of layoffs, for signs that the virus has started to seep into the economy.