Ever since the scope of the coronavirus epidemic in Wuhan started becoming clearer in January, economists have been cutting their growth forecasts. Early this year, for example, Deutsche Bank forecast that U.S. gross domestic product would grow at a 1.7% annual rate in the first quarter, and 2.2% in the second. Now its economists are looking for GDP growth of 0.6% in the first quarter, followed by a 0.6% contraction in the second.
In the third quarter, they look for growth to resume, but, says Deutsche’s global head of economic research Peter Hooper, “there is no question there will be an overall loss of consumption and investment activity that does not come back.”
Like most of his peers, Mr. Hooper believes the U.S. will skirt a recession. That is by no means a given, though. The risk of a downturn is very real.
Even without taking into account the effects of full-scale spread of the virus in the U.S., it isn’t difficult to imagine a scenario where as people avoid things such as travel and dining out to reduce risk, businesses cut back on employment, leading to an adverse feedback loop that further hurts spending. Nor is it hard to imagine that small and midsize businesses forced to temporarily halt operations will get pushed to failure.