Don’t miss the latest developments in business and finance.

Risk of reopening US economy too fast: A W-shaped recovery

Image
AP Washington
Last Updated : May 11 2020 | 10:03 PM IST

When the coronavirus erupted in the United States, it triggered quarantines, travel curbs and business shutdowns.

Many economists predicted a V-shaped journey for the economy: A sharp drop, then a quick bounce-back as the virus faded and the economy regained health.

Others envisioned a slower, U-shaped course.

Now, as President Donald Trump and many Republicans press to reopen the economy, some experts see an ominous risk: That a too-hasty relaxation of social distancing could ignite a resurgence of COVID-19 cases by fall, sending the economy back into lockdown.

The result: a W-shaped disaster in which a tentative recovery would sink back into a double-dip recession before rebounding eventually.

The push to reopen the economy is making a W-shaped recovery very much more likely, said Jeffrey Frankel, professor of capital formation and growth at the Harvard Kennedy School.

More From This Section

In Frankel's view, any widespread reopening should wait for a sustained drop in death rates and the broad availability of tests. No one is completely safe until an effective treatment or vaccine can be produced and widely distributed a scenario that's likely many months away.

Frankel said he also worries that the government might prematurely withdraw financial aid to the economy, thereby weakening the pillars of any tentative recovery.

A W-shaped recovery is a distinct possibility, said Yongseok Shin, an economist at Washington University in St Louis and a research fellow at the Federal Reserve Bank of St Louis.

Unless the reopening is carefully managed with extensive testing and voluntary social distancing, infections will rapidly rise in many localities. People will then hunker down for fear of infection, and local governments will re-impose lockdowns, quashing any economic recovery we will have had to that point.''
The idea that you just turn the spigot back on is just ridiculous, said Diane Swonk, chief economist at the consulting firm Grant Thornton. It's still a COVID-tainted spigot. No one wants water from a poisoned well.''

Also Read

First Published: May 11 2020 | 10:03 PM IST

Next Story