The Coronavirus Recession Will Be Deeper and Faster Than the Financial Crisis. Why That Matters.

My Comments: Parallels are being drawn between the economic disaster now unfolding with other financial crises in the past. Some say it’ll be over soon and others suggest the effects will last for decades.

The writer below talks about this “recession” being a V shape recession. That translates to one where the downstroke is sharply down followed by a quick upstroke. Think of it as a line on a chart that reflects economic activity over time.

Other pundits say it’ll look like the letter L. This is where the downstroke is rapid, followed by a quick stop at the bottom of the stroke, followed by months of no recovery. Who knows what it will look like next.

Some suggest it will be U shaped, where it goes down, then slows quickly, followed by a descernable return to more activity so that again, looking at it on a future chart, it went sideways for a while before starting upward again.

I have no idea what it will look like. My guess is it will follow the downstroke for longer than anyone anticipated, followed by a bunch of wiggles before it slowly starts going back up. How long or how deep it will go, I have no idea.

The global economy is more closely linked than it’s ever been. For those countries less affected by the virus, expect them to recover more quickly. The last time there was a similar global event was in 1918 when there was no TV, no internet, just the telegraph and newspapers. If you wanted to get to London from New York, you went by ship and hoped to get there within a week.

These words appeared in Barron’s, a long time, highly reputable magazine in the world of money. Most of me wants this to be over soon, because I don’t like the new normal. Maybe at the end of this the chart will show a V shaped event, but I doubt it. I think that’s wishful thinking and I’m a glass half full person.

By Evie Liu \ April 6, 2020 \

The global economy is expected to head into a recession—almost 11 years after the most recent one—as the Covid-19 pandemic continues to shutter businesses and keep people at home. But some economists expect to see a V-shaped recession, rather than the U-shaped one seen during the 2008 financial crisis. In other words, the pain will be much deeper, but shorter, if experts are right.

In a Friday note, Morgan Stanley chief economist Chetan Ahya wrote that he expects the Covid-19 outbreak to peak in April and May and that global economic growth will trough in the second quarter of 2020 with a 5.2% year-over-year decline. That will be a deeper dive than the 2.4% contraction seen in the first quarter of 2009. For the whole year of 2020, he estimates that the global economy will contract by 1.9%, more than the 0.5% decline during the financial crisis.

Still, Ahya expects output levels—particularly in developed markets and China—to recover and reach pre-Covid-19 levels by the third quarter of 2021. That means the total course of the Covid-19 recession will last seven quarters, much shorter than the 14 quarters the financial crisis lasted. Ayha expects global economic growth to jump back to 5.6% in 2021.

The Covid-19 crisis, which has forced governments to adopt containment measures to protect public health, is more akin to a natural disaster than a financial shock, Ahya noted. “While the recovery will hinge on how fast activity resumes, in all likelihood, this recession is likely to have fewer lingering effects,” he wrote.

The policy response this time around has also been more aggressive than during the financial crisis. Since mid-January, at least 25 central banks have announced quantitative easing programs in an unprecedented scope of coordinated response.

Ahya estimates that the G4 central banks alone—the Bank of England, the Bank of Japan, the Federal Reserve, and the European Central Bank—will expand their balance sheets by a cumulative $6.5 trillion. Central banks have also acted more quickly to address dislocations in the funding markets and ensure credit is still flowing.

Fiscal expansion is also taking place across the board in a faster and more sizable manner. In the U.S., for example, the fiscal stimulus package was assembled in about week. It took two months for a stimulus package to be created during the financial crisis.

The U.S. fiscal deficit is expected to reach 18% of the gross domestic product in 2020, wrote Ahya, nearly eight percentage points up from the scale in 2009. That’s the highest level since 1946, during World War II.

What’s more, there are already discussions about further fiscal support. Across the G4 countries and China, Ahya expects the cyclically adjusted fiscal deficit to widen to 9.2% of their combined gross domestic products in 2020 as compared with the 6.5% in 2009.

Still, if the virus peaks later than expected and economic activities are disrupted for longer due to extended periods of containment measures, it will extend the depth and duration of this recession. In such a bear case scenario, the global economy could see as much as 4.8% decline in 2020, Ahya said.