The economy can be delicate when a disaster strikes that can affect the spending habits of the masses. When we think of the hysteria that lead to a lockdown of cities all over the world, it can get scary. But does that mean a recession is imminent? First, note that the word recession gets used loosely so we’ll provide the definition here before we go any further.
What is a Recession?
The simple definition, for the sake of this article is when the economic output retracts for 2 quarters without any interruption.
So, in this case, there is already a recession the moment that people couldn’t leave their homes and spend money.
Will this get worse and evolve into a full-blown recession that lasts for years, or at least long term? Let’s look at that, shall we?
According to the two financial heavy hitters Goldman Sachs and Morgan Stanley, yes, it just might. No one can say for sure, but these people know trends and right now, it looks like a yes. There is debate on how severe it will be and the length of time it will last. This perception is bound to continue for a while as more information is known about the virus itself.
Our demand from other countries and vice versa needs to be taken into consideration. The Italian economy was already in trouble to the point of being stalled before the virus. China looks as if it’s on its way for a first-quarter retraction for the first time in years. And Japan, France and Germany are following suit.
This is reflected by a term called feedback loop. Here’s what that could look like for us. When the US starts to recover but other countries don’t and the demand diminishes, we will see a prolonged economic downturn.
According to the International Monetary Fund, there have been 11 US recessions since WWII but only 4 global recessions since 1960. So whereas the US is used to the frequent recessions, it hasn’t had to battle a global one in these times. So this remains interesting. How we handle this one will say a lot about what our financial future looks like.
The Picture of the Future.
Recession follows expansion. For the past 11 years, the US has expanded with sprawling commercial construction and a booming economy. It bounced back from 2008. However, this 11 year span, according to economists, is ending now. Just in time for a downturn.
Consumer spending may come to a halt, and feeding the travel and tourism industry will be hard to do. Sure they’ll always be people with money and the desire to travel. Those same people will want to visit places that now won’t over crowd with folks. However, hiring freezes and mass layoffs can happen across the board in this area.
Now let’s hear from the other side:
Not everyone agrees with top economists. Steven Mnuchin the US Treasury Secretary said that the virus may slow growth but isn’t strong enough an impact to send the US into a spiraling economic crash.
Don’t look for any off-the-rooftops declaration for at least a year. This is the time it takes typically to surface after the expansion ceases and the recession begins. We should be well into it with plenty of evidence beforehand so don’t worry about being left in the dark. The light will shine steadfast in your neighborhoods and workplaces to reveal what’s really going on.
What makes it severe?
According to Jason Vanclef this is a question on everyone’s lips. This is the core question that people want answered. The answer is not that simple. There are formulas that the economy must fall into and there are many. If we travel the path of longevity then it’s more devastating. If there is a collapse in the financial sector then this also elongates the process. If there’s a downturn in a specific sector like in 2001 which affected tech then it’s impact is long but the effect on time is much shorter.
The best thing that people can do right now is to hang tough and wait says Jason Vanclef. More will be revealed as we go along. Why? Not because there’s anyone trying to hide the information but because the landscape of COVID 19 is still changing. We are receiving test results from people exposed in the past 30 days. They are piecing together a puzzle whose pieces keep changing. What’s need now is patients