Business economists expect worst slump since 1940s

WASHINGTON (AP) — Business economists expect the United States (US) to suffer its worst downturn this year in more than seven decades before growth resumes sometime next year.

Overhanging that forecast, though, is the risk that a second wave of the coronavirus could threaten the economy once again.

A survey released yesterday by the National Association for Business Economics (NABE) predicts that the gross domestic product — the total value of goods and services produced in the US — will fall 5.9 per cent for 2020 as a result of the recession triggered by the virus. That would be the sharpest annual decline since GDP fell 11.6 per cent in 1946, when the nation was demobilising after World War II.

The NABE panel of 48 forecasters expects the five per cent annual gross domestic product (GDP) drop that occurred in the January-March quarter to be followed by a record 33.5 per cent annual plunge in the current April-June quarter. Yet the NABE panel foresees economic growth returning in the second half of the year, with strong annual expansions of 9.1 per cent in the July-September quarter and 6.8 per cent in the October-December quarter. Even so, those gains would fall far short of making up for the dizzying economic contraction in the first half of this year.

In 2021, the panel forecasts GDP growth of 3.6 per cent. But not until at least the second half of next year, according to an overwhelming majority of the forecasters, will the economy recover all its lost output from the recession. If a second eruption of viral infections were to occur, though, it would likely take much longer.

“Eighty-seven per cent of panelists view a second wave of COVID-19 as the greatest downside risk through 2020,” added economist for Wells Fargo and the chair of the outlook panel Eugenio Aleman. He noted that 51 per cent of the economists regard the potential discovery of an effective vaccine as offering the biggest upside potential for the economy.

The new forecast represents a sharp downgrade from the NABE panel’s previous survey results, which suggested that the economy would grow 1.8 per cent in 2020. That forecast was made in December, long before the coronavirus struck with force in March, ending the longest economic expansion in US history.