August 4, 2020
It is the general consensus that the bottom of the economy was the second quarter of this year. The contraction was expected to be severe as the economy virtually shut down during several weeks of this period. How severe? Just giving a perspective, the largest annual decline in economic growth (GDP) during the great recession was -2.4% in 2009. The largest annual decline in the past 60 years, was 6.19% in 1974.
The 32.9% decline in the GDP for the second quarter is certainly devastating, as expected. This is an advanced estimate and is subject to revisions. Together with the 5.0% decline in the first quarter, the economy fell over 35% in the first half of the year. The economy is expected to grow in the second half of the year, however it has a lot to make up in order for the annual rate of decline not to be the greatest within the past two generations.
How long will it take for the economy to turn net positive, taking into account the first half of this year? This is the trillion-dollar question. Many feel the economy will bounce back significantly and we can see from the data, it already has. But there will be some lingering effects from the recession. For example, over 1 million weekly unemployment claims are being filed. This is more than three times the average during the first months of the year. Bottom line, the quicker the pandemic ends, the faster the GDP will recover.
Source: Origination Pro
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