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How bad is the coming recession going to be? Financial analysts brace for the worst


A 'sharp but short' contraction?

Shawn Thew/EPA/Bloomberg via Getty Images

Although no one yet knows the extent of the damage the coronavirus pandemic will wreak on the global economy, financial analysts are bracing markets for the possibility of a global economic contraction that could fairly be called a second Great Depression in terms of its severity, if not its length.

According to CNN, analysts from JPMorgan Chase are predicting that China's economy will shrink an astounding 40% this quarter, which will, of course, have ripple effects across the globe. The firm also predicts that the United States economy will shrink at an annualized rate of 14% this quarter, a rate that is far worse than that of the deepest part of the 2008 recession.

If those predictions come to pass, they would represent the largest economic contractions for both regions in many decades. The firm also predicted that U.S. unemployment rate would rise to 6.25% before the end of the year.

It is worth noting that these projections include in their assumptions the probability that the United States and Europe will react to the crisis with massive government injections of stimulus spending into the market.

It is also worth noting that, historically, economists have not had a tremendous success rate when it comes to predicting recessions. As the left-leaning data crunchers at FiveThirtyEight have noted, the vast majority of recessions that have actually occurred in history were not predicted by economists, while many recessions that were predicted never came to pass.

Still, the belief that the coronavirus will cause a recession (at least) is a virtually universal one, as entire sectors of the global economy have ground to a standstill in an effort to halt the spread of the disease. Even President Donald Trump acknowledged earlier this week that a recession due to the virus is likely.

The only question that remains is: How bad will the effects be, and how long will it take the economy to recover?

The simplest answer is that no one knows, because the modern world has never seen anything like what is about to happen. As Curt Long, chief economist and vice president of research at the National Association of Federally-Insured Credit Unions, told the New York Post, "We've never seen anything like what we're about to see in terms of the suddenness and severity of the shock, both to the broader economy and to the labor market in particular."

Still, while most economists are predicting rather severe economic damage, the good news is that most also agree that the downturn will be much shorter in duration than some previous economic downturns.

Gus Faucher, an economist with PNC Financial Services Group, echoed the sentiments of many economists when he told USA Today that the effects of the coronavirus would produce a "short but sharp" economic contraction.

Still, for those who work in the travel, food, and entertainment industries, the disruptions are likely to be serious indeed.

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