- A second wave of coronavirus cases would dash hopes of a rapid recovery and push the United States into a depression, Mark Zandi, chief economist at Moody’s Analytics, told CNBC on Friday.
- States have started to reopen their economies to keep businesses afloat, but public health experts are warning that a return to antiretroviral standards could spur new infections.
- Zandi defines depression as at least 12 months of unemployment exceeding 10%. Labor market data released on Friday showed that the unemployment rate reached 14.7% in April.
- The US economy is in “quicksand” until a vaccine can reverse the damage to consumer confidence and business operations, added Zandi.
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What many see as the cure for the current economic downturn could lead to a far worse outcome, warned Moody’s chief economist Mark Zandi.
Several states have started to cancel the closings to revive the economies hit by the coronavirus pandemic. The gradual reopening aims to keep businesses afloat and curb the loss of additional jobs, but public health experts fear that a premature return to standards risks a second wave of infections. Zandi shares the concern, telling the CNBC “Trading Nation” that a new epidemic would fuel a much slower recovery.
“We may not close any more, but it will certainly scare people and scare them and weigh on the economy,” he said on Friday. “It would be fodder for a depression. “
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Zandi defines an economic depression as a 12-month period with an unemployment rate above 10%.
Recent economic data suggests that the United States is already on the road to a prolonged recession. The Bureau of Labor Statistics reported on Friday that the unemployment rate had climbed to 14.7% from 4.4% in April, as non-farm wages fell by 20.5 million. Unemployment in the United States is now at its highest level since World War II and is approaching unprecedented peaks since the Great Depression.
Hiring could rebound from late May as businesses resume operations, the economist predicted, but lasting risk will weigh on economic activity for months to come.
“We are going to be in the quicksand until we get a vaccine because of the uncertainty surrounding the virus and its impact on consumers and businesses,” added Zandi.
Where Zandi sees reason for concern, markets anticipate a rapid rebound from recent lows. Major US indices have rebounded steadily from March lows, as the Nasdaq composite recently wiped out any cumulative losses in tech profits. Strong trends may be attractive to investors, but Zandi expects a correction before returning to past highs.
“The market places a fairly high probability of a V-shaped recovery,” he said. “I suspect that the scenario in this bear market is not over. We will have to see the market reassess at some point. “
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