How Long will it Really Take for the Economy to Bounce Back

In our last piece we spoke about how some finance experts believe that the American economy is bouncing back ahead of schedule.  But now we have other experts predicting that it is going to be an extremely long haul and that the next 10 years will see the country recovering.

An analysis by the Congressional Budget Office indicating that a reduction in economic output in America over the next decade will reach $7.9 trillion.  That damage – for now leaving aside inflation costs – will translate to $15.7 trillion.  The CBO did however add a caveat, pointing out the huge level of uncertainty and unknown surrounding the pandemic.

Capital Economics Group Chief Economist Neil Shearing said:

“While the slump in output caused by the virus seems to have bottomed out, the recovery is likely to be slow going and uneven. Most economies are still likely to be below their pre-virus paths of GDP by the end of our central forecast horizon in 2022,” 

He gave three reasons for this:

  1. Tremendous Loss: We tend to forget – as we see the economy recovering – that so much output was lost during lockdown.
  2. Consumer Spending Predictions: these remain unclear from high frequency data we are receiving.
  3. Reopening Worries: Governments and policy makers are still trying to figure out the best way to re-open, “shift[ing their decisions] from crisis mode to recovery.”

Another issue to consider – as pointed out by a recent Bloomberg analysis – is that while businesses are beginning to re-open, given that this is within a context of rising COVID-19 cases, panic is mounting and this will likely negatively impact the economic recovery as well.