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A cruel paradox: Beating coronavirus means causing US recession

Solving the health crisis by shutting down the economy, though, will have to come first.

By: AP | Washington |
March 18, 2020 10:39:21 pm
Wall Street, Dow Jones, Wall Street coronavirus, Dow Jones coronavirus, coronavirus Wall Street, World Markets, Indian Express Financial markets sank again Wednesday on fears about the economic damage. (File)

No one knows how long it will last or how much it will hurt. But the US economy is either sliding into a recession for the first time since 2009 or is already in one — a sudden victim of the coronavirus outbreak.

The vast changes deemed necessary to defeat the virus — people and companies no longer engaging with each other — are bringing everyday business to a halt and likely delivering a death blow to the longest economic expansion on record.

The interplay between the outbreak and the steps meant to vanquish it reveals a cruel paradox: The faster and more painfully that ordinary economic life shuts down, the faster the health crisis can be solved and the faster people and businesses may gain the confidence to return to normal life.

Conversely, a prolonged period of fighting the virus would delay an economic rebound and imperil many small businesses.

Much, too, will depend on how swiftly and aggressively the Federal Reserve, Congress and the Trump administration deliver financial aid to tens of millions of economic victims — from hourly workers with no more income to suddenly furloughed employees to businesses with loans to pay but no customers.

Solving the health crisis by shutting down the economy, though, will have to come first.

Financial markets sank again Wednesday on fears about the economic damage. The Dow Jones Industrial Average was down nearly 1,000 points in mid-morning trading.

In another sign that the outbreak is severely disrupting business, Honda said it would shut down its North America plants for a week starting Monday.

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Experts say the economy has deteriorated with stunning speed. And the United States is hardly alone: By all estimations, Europe is enduring its own recession, accelerated by the coronavirus” epicentre in Italy.

In the US, waves of layoffs seem inevitable, especially in industries most vulnerable to an economic standstill: Travel, entertainment, hotels, restaurants, retail stores — the heart of the service sector, which makes up most of the US economy.

Unemployment is sure to rise, perhaps sharply, in the months ahead.

Even President Donald Trump, ever celebratory of the economy”s performance on his watch, conceded this week that the US “may be” heading toward a downturn.

Statistics that will capture the economic damage from the virus and the efforts to contain it are just beginning to surface.

The early evidence is sobering: The Federal Reserve Bank of New York reported Monday that manufacturing activity in New York state plunged this month to the lowest level since the Great Recession year of 2009.

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On Tuesday, hotel executives, whose bookings have swiftly dried up, took their worries to the White House.

Initially, economists had expected more or less a repeat of what had happened when SARS hit China and Southeast Asia in 2003: Short-lived damage, largely isolated to China and Hong Kong, that left the United States relatively unscathed.

China does pack four times more weight in the global economy than it did 17 years ago. And it”s far more tightly integrated into the world economy. Still, the main problem for the US economy this time, it was thought, would be disrupted supply chains involving some Chinese imports: Made-in-China iPhones, Easter eggs and beachwear, for example, among others, would be delayed.

Yet the rapid spread of the virus and the disease it causes, COVID-19, heightened the economic threat to the United States. Suddenly, the outbreak was everywhere.

In response, the economy started shutting down as Americans sought to isolate themselves to avoid contagion. Airlines cancelled flights. The NBA and NHL called off their seasons. There would be no March Madness.

Fast-food restaurants closed their dining rooms and confined their service to drive-through windows. Workers stayed away from offices and hunkered down at home instead of spending money at bars, restaurants, stores, movie theatres.

Compounding the threat, oil prices started to tumble in the face of weakening global growth. That was especially so after Russia and Saudi Arabia staggered into an oil war, refusing to cooperate on production cuts to stabilize the oil market.

Plummeting prices, though welcome to motorists, threatened to discourage investment by US energy companies that contributes to economic growth.

Trouble in the oil patch, in turn, put pressure on deeply indebted oil and gas exploration and drilling companies. This trend intensified fears over the health of the corporate bond market where companies go to borrow.

As the economic outlook darkened, financial markets began to crumble — brought down, too, by the US government”s fumbling initial response to the crisis.

Despite a strong rebound Tuesday, the Dow Jones Industrial Average remains down more than 8,300 points, or 28 per cent, since February 12. (AP) SCY

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