As the coronavirus continues its march around the world, governments have turned to proven public health measures, such as social distancing, to physically disrupt the contagion. Yet, doing so has severed the flow of goods and people, stalled economies, and is in the process of delivering a global recession. Economic contagion is now spreading as fast as the disease itself.

Understanding the Economic contagion

This didn’t look plausible even a few weeks ago. As the virus began to spread, politicians, policymakers, and markets, informed by the pattern of historical outbreaks, looked on while the early (and thus more effective and less costly) window for social distancing closed. Now, much further along the disease trajectory, the economic costs are much higher, and predicting the path has become nearly impossible, as multiple dimensions of the crisis are unprecedented and unknowable.

In this uncharted territory, naming a global recession adds little clarity beyond setting the expectation of negative growth. Pressing questions to include the path of the shock and recovery, whether economies will be able to return to their pre-shock output levels and growth rates, and whether there will be any structural legacy from the coronavirus crisis. This article is brought to you by Car Loans of America.

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Darker outlook, less visibility

The window for social distancing — the only known approach to effectively address the disease — is short. In Hubei province, it was missed, but the rest of China-made sure not to miss it. In Italy, the window was missed, and then the rest of Europe missed it too. Also, in the U.S., still constrained by insufficient testing, the early window was also missed. As the disease proliferates, social-distancing measures will have to be enacted more broadly and for longer to achieve the same effect, choking economic activity in the process.

Another wave of infections remains a real possibility, meaning that even countries that acted relatively quickly are still at risk every time they nudge their economies back to work. Indeed, we have seen some resurgence of the virus in Singapore and Hong Kong. In that sense, the only history will tell if their early and aggressive responses paid off.

At present, the economic outlook for late actors looks bleak, having caught politicians, policymakers, and financial markets off guard. What happened in the last four weeks was not part of the risk calculation. Forecasts won’t help much here. For example, consensus estimates for initial unemployment claims in the U.S. were around 1.6 million this week, but the figure came in at 3.28 million — a historically unprecedented figure, about five times greater than the largest weekly increase in the global financial crisis. If you want to buy a car and are dealing with bad credit, we offer bad credit car loans too.

COVID-19 Aspects

Notoriously unreliable at the best of times, forecasts look especially dubious now as there are simply too many unknowable aspects:

• The virus’ properties are not fully understood and could change.
• The role of asymptomatic patients is still imperfectly understood.
• The true rates of infection and immunity are therefore uncertain, especially where testing is limited.
• Policy responses will be uneven, often delayed, and there will be missteps.
• The reactions of firms and households are uncertain.

Perhaps the only certainty is that any attempt at a definitive forecast will fail. However, we think examining various scenarios still adds value in this environment of limited visibility. Learn more about Car Loans at https://houseaffection.com/making-a-financial-plan-for-yourself/.

Examining the shape of the shock

The concept of a recession is binary and blunt. All it says is that expectations have flipped from positive to negative growth, at least for two consecutive quarters.

We think the bigger scenario question revolves around the shape of the shock — what we call “shock geometry” — and its structural legacy. What drives the economic impact path of a shock, and where does COVID-19 fit in? Learn more about Car Loans at https://en.wikipedia.org/wiki/Car_finance.

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