By Jeffry Bartash, MarketWatch
Some U.S. states are already trying to reopen for business and President Trump has repeatedly predicted economic growth will take off like a “rocket ship” once the coronavirus pandemic ends, but economists increasingly believe a recovery will be a long and uneven one.
The U.S. economy is on track to show the biggest contraction in the second quarter in American history — 25% or more, and gross domestic product for the full year is likely to shrink by the most since World War Two.
By the end of this year, the U.S. should start to rebound. Some economists even think it’s possible that growth will expand in the third quarter.
Yet barring a sudden and implausible cure for the COVID-19 disease, there’s little chance the economy will return to a pre-crisis state of health, analysts say. The disease has put tens of millions of out work, is likely to cause thousands of company failures, and will leave lasting scars on the psyche of consumers and business leaders.
What’s more, some of the worst-suffering industry sectors such as airlines, hotels, restaurants, theaters and professional sports will have to adapt to the new reality of social distancing and increase spacing between customers, curbing sales, profits and employment levels. And the emerging share economy built around companies such as Uber could be stunted.
Business might never be the same.
“Once things restart, it would be naive to think the economy will bounce right back to ‘normal,’ ” said Citibank analysts Ashwin Shirvaikar and Andrew Schmidt.
Gaping wounds, big bandages
The federal government has tried to prop up the economy to cope with an unprecedented cataclysm. Washington has already passed $2.2 trillion in relief for households and businesses and the well is far from dry. Congress is on the verge of approving an additional $500 billion in aid and more spending bills are sure to follow.
Even all that money won’t be enough, however, to keep thousands of businesses afloat and help millions of Americans earn a paycheck. More than 21 million Americans have already applied for jobless benefits and economists estimate the unemployment rate has unofficially topped 15%.
The record number of unemployed has triggered a massive decline in demand. Sales and profits for most businesses have fallen off a cliff, forcing companies to lay off more workers and slash investment.
And the vicious cycle is feeding on itself.
“No matter how much fiscal stimulus Congress pumps in — and more is coming — business earnings across wide swathes of the economy will be crushed for an extended period,” said chief economist Ian Shepherdson of Pantheon Macroeconomics. The stock market /zigman2/quotes/210598065/realtime DJIA +0.93% has lost about a quarter of its value in a reflection of the damage.
The first step in any rebound, of course, is a gradual decline in new COVID-19 cases. The nearly nationwide lockdown and social distancing since the middle of March has started to slow the spread of the virus, but it’s unclear when the corner will be turned.