There may be no one better to opine on this than a member of the official Business Cycle (Expansions and Recessions) Dating Committee, who recently shared his opinions with Econbrowser and Project Syndicate. The following are excerpts from these:
The COVID-19 outbreak seems to have raised the odds of a global recession dramatically. But even if no downturn materializes in the near term, the outbreak, together with US President Donald Trump’s trade policy, may herald the end of the era when steadily rising international trade buttressed global peace and prosperity.
CAMBRIDGE – At the start of this year, things seemed to be looking up for the global economy. True, growth had slowed a bit in 2019: from 2.9% to 2.3% in the United States, and from 3.6% to 2.9% globally. Still, there had been no recession, and as recently as January, the International Monetary Fund projected a global growth rebound in 2020. The new coronavirus, COVID-19, has changed all of that.
Early predictions about COVID-19’s economic impact were reassuring. Similar epidemics – such as the 2003 outbreak of severe acute respiratory syndrome (SARS), another China-born coronavirus – did little damage globally. At the country level, GDP growth took a hit, but quickly bounced back, as consumers released pent-up demand and firms rushed to fill back orders and re-stock inventories. It is becoming increasingly clear, however, that this new coronavirus is likely to do much more damage than SARS. Not only has COVID-19 already caused more deaths than its predecessor; its economic consequences are likely to be compounded by unfavorable conditions – beginning with China’s increased economic vulnerability. China’s economy has grown significantly more slowly in the last decade than it did previously. Of course, after decades of double-digit growth, that was to be expected, and China has managed to avoid a hard landing. But Chinese banks hold large amounts of non-performing loans – a source of major risks…
Some still cling to growth optimism, rooted in recent trade agreements negotiated by US President Donald Trump’s administration: the “phase one” deal with China and the revised free-trade agreement with Canada and Mexico. But while those agreements are far better than they would have been had Trump stuck to the hardline positions he once defended, they do not represent an improvement over the situation that prevailed before he took office; if anything, their net impact is likely to be negative. Consider the “phase one” deal with China: not only does it leave in place high tariffs; it also remains fragile, owing to a lack of credibility on both sides...While global recessions are exceedingly difficult to forecast, the odds of one – particularly one characterized by less than 2.5% growth, a threshold set by the IMF – now seem to have risen dramatically […]