The bumpy road ahead: COVID-19 will hurt the US economy, but a recession call is still a stretch

The US economy started 2020 on a strong footing, but the rapid spread of COVID-19 has raised anxieties and rattled markets. The Conference Board expects a sizeable disruption to certain areas of the economy. Startled by the virus, we expect consumer spending to contract by 1.7 percent in Q2. Combined with other impacts, we forecast that real GDP growth will contract by 1.0 percent that quarter. The economy should then rebound in the second half of 2020. For the year as a whole, we expect real GDP growth to fall to 1.4 percent, which is more than 0.5 percent lower than our last forecast. We do not expect a full-fledged recession in 2020, unless new COVID-19 cases continue to climb after April.

Economic forecasting in times of crisis, especially in the middle of evolving events, is daunting. While one cannot argue with any certainty how the COVID-19 outbreak will take shape over the coming months, The Conference Board’s latest economic forecast assumes that the number of new cases will peak in April and then begin to diminish.

Real GDP growth is expected to contract by 1.0 percent in the second quarter. We expect a sizeable disruption to certain parts of the economy over the coming two to three months – most notably travel, tourism, hotels, restaurants and industries which are heavily dependent on global supply chains. In particular, we forecast consumer spending to contract by 1.7 percent in the second quarter.

The economy should begin to return to its long term trajectory in the second half of 2020 as consumer spending rebounds. For the year as a whole we expect real GDP growth to fall to 1.4 percent from 2.3 percent in 2019. However, we currently see a full-fledged recession as the less likely outcome provided that new COVID-19 cases peak by the end of April.