How fast will economy recover from Covid-19?

Just how fast will the US economy recover from the coronavirus pandemic? The honest answer is that no one knows, but we are now beginning to get some plausible guesses. As you might suspect, the news isn’t good. The latest forecast comes from the Congressional Budget Office (CBO) and suggests that it may take a decade for the economy to regain its pre-recessionary peak. But some economists think even this may be too optimistic.
We are moving into a new era when the competition for scarce economic resources promises to become ever more intense. Government agencies, different industries, rival corporate executives and advocates of various forms of tax relief will all fight for bigger pieces of the slow-growing national economic pie. Some will win; others won’t.
The CBO responded to a request by Senate Minority Leader Charles E Schumer, D-NY, to compare its latest forecast with those prepared in January. The loss was a stunning $7.9 trillion over an 11-year period, with the figures adjusted to eliminate inflation. The main causes were the coronavirus and related lockdown, which caused a surge of joblessness.
That’s about 3% of cumulative loss to gross domestic product over the same period, says the CBO. There may be more to come. Employment, car sales and housing starts could all take a hit when the CBO recalculates other changes since January. In particular, it hasn’t re-estimated changes in productivity — overall efficiency, which could result in significantly faster or slower economic growth.
Economist Mark Zandi of Moody’s Analytics believes that the CBO’s forecast may be too optimistic. “I don’t think the economy will ever fully get back to the GDP growth rate [before the pandemic], which CBO expects by the end of
this decade,” he said in an email. He cited many factors that could slow growth: “diminished globalisation — including less trade, immigration and foreign investment — and a much more precarious [budget] situation.”
(GDP includes all spending for market goods and services; it is widely referred to as “the economy.” It does not include nonmarket activities, such as reading, playing sports or indulging a hobby. These deliver pleasures, too, but their value is especially hard to calculate. In 2019, US GDP amounted to about $21 trillion.)
There isn’t much to cheer here — and perhaps that provides some hope. There has been so much bad news that maybe the next surprise will be good.

—The Washington Post

Robert J Samuelson is a journalist for The Washington Post, where he has written about business and
economic issues since 1977