Repercussions from the coronavirus may include recession

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The full economic fallout stemming from novel coronavirus is yet to be determined, but the threat of a national recession looms on the horizon, a University of California Riverside economist said.

“This is unprecedented in nature and by far the worst threat facing the U.S. economic expansion since it began over a decade ago,” Chris Thornberg, director of the University of California Riverside’s Center for Economic Forecasting, said. “Will it end the expansion for the year? Whatever the scenario, from best to worst, we are definitely going to see a serious hit in the first half of 2020.”

Thornberg predicted that unemployment claims will necessarily jump in the coming weeks, while the real estate market will slump, along with business startups. With emergency health orders impacting operations within the private and public sectors, productivity will suffer, according to the economist.

“The U.S. economy is about to hit one big pothole,” he said, stopping short of declaring that a deep recession is inevitable.

The deciding factor may be how fast COVID-19 is contained and operations are allowed to return to normal. Thornberg said that if mitigation proves effective in a short span of time, output lost in the first half of this year may be offset by a run-up in productivity during the second half.

The shock to the global financial markets, precipitating a plummet in interest rates and equity values, seemed to be overblown, he said, given the previously robust signals from a range of sectors.

“For years, the stock market has reacted hyperexcessively to non-economic events, and concerns have intensified about what that means when a true crisis emerges,” he said. “The markets have taken on such a degree of volatility that they can create their own crises. Hopefully, when the pandemic passes, regulators will take a hard look at how financial markets are operating and consider rules and regulations that prevent these issues in the future.”

Center for Economic Forecasting staff and economists from Los Angeles-based Beacon Economics – which Thornberg co-founded – issued a joint report on conditions that can found at http://www.beaconecon.com.

The narrative sharply contrasts with the center’s annual economic assessment, released in November, which predicted that the local, state and national economies would continue humming through 2020.