APRIL 2020 – As I write this, we are a few days from the projected peak day of death from the pandemic here in the United States. With that “light at the end the tunnel” economists are starting to predict what comes next for the economy.
McKinstry this week published a prediction. TL;DR: U.S. GDP drops by 8%-13% in 2020. Personally I don’t understand how 15%+ unemployment only leads to at most a 13% drop in GDP, but McKinstry wasn’t clear on how long they expect the lockdowns to last. History says it’ll be longer than people think.
In any case, even 8% would be the biggest drop since the Great Depression. And even more interestingly, the above graph is the first I’ve seen showing all of the panics, recessions, and depressions in the 20th and 21st Centuries graphed in a cohort analysis form.
ASIDE: I’ve spent a lot of words on this blog talking about economic history, about the reason why we have a Federal Reserve and other central banks, and this one graph answers that question in a far simpler form. Look at how frequent and deep the downturns used to be prior to the Great Depression, before the Fed was formed and its powers figured out. If we had a graph of the 19th Century, we’d see more of the same. Compare that to post-WWII and how the Panic of 2007-2008, as big as that felt, was a run of the mill panic from 100 years earlier.
McKinstry isn’t the only prediction I found today. PIMCO, the global investment management firm is predicting a deep, but hopefully, brief recession. A -30% drop in Q2 GDP (annualized) but only -5% for the year.
They too don’t explain how exactly the economy will go back to normal in the second half of the year.
Lastly is a prediction from famous hedge fund manager, Ray Dalio. He’s predicting another Great Depression.
Three predictions from three corners of the financial world. Three predictions ranging from a quick, short, -5% recession to Great Depression II, or something in between.
Who do you think is right?