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Experts Weigh Question of Economic Versus Public Health: The Week Ahead

There’s little doubt that public health concerns supersede economic ones, but now experts worry a second wave of coronavirus infections could squelch any fledgling market recovery.

“Recovery will be gradual as fears linger and social distancing endures, but we expect the economy will at least partly reopen in the third quarter,” Beth Ann Bovino, U.S. chief economist for S&P Global Economics, said.

Economic recovery

S&P is forecasting U.S. GDP to contract 5.3 percent in 2020, which includes an expected historic second-quarter drop of almost 35 percent.

Shelter-in-place mandates affecting three-fifths of the population drove the second-quarter decline, which drove a 33.5 percent drop in consumer spending, credit ratings firm S&P said.

China, a chief U.S. competitor that’s just entering its own coronavirus recovery, could have the first-mover advantage in restarting the global economy and end up taking market share, Bovino said in an Institute of International Finance webinar Thursday.

More important, a potential second wave of virus infections looms large.

“The risk of a second wave, even if we don’t have one, will be on everyone’s mind,” Bovino said.

There’s also a question of just how willing Americans will be to heading out and resuming their pre-COVID activities. “It all starts with confidence. We’re a long way from building consumer confidence to go out,” said Megan Greene, a senior fellow in the Mossavar-Rahmani Center for Business and Government at Harvard Kennedy School.

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Greene isn’t so sure Americans will be willing to go back to crowding restaurants where they rub elbows with those at the next table, and even said she’ll likely go to the cinema, “but probably not do it as much as I used to.” And if new cases come up, there will be a pull back and the recovery will end up “zigging and zagging,” Greene said.

Second-wave COVID-19 risks

There are good science-based reasons to be wary of a second wave.

“It’ll continue to go at the human population with a vigor until it gets to 60 to 70 percent to get to herd immunity,” Michael Osterholm, director of the Center for Infectious Disease Research and Policy at the University of Minnesota, said. What no one know is whether the virus will be a “slow burn, or we’ll see it go away like in other past pandemics and then return,” he added.

Osterholm cautioned that a peak wave the second time around could be larger than what the data is showing now. “It will continue to be a challenge for us around the world,” he said. Scientists and doctors don’t really yet understand immunity as it relates to the virus. Those who have been infected might be immune, but if they are, we’re “not sure for how long,” he said.

And emphasizing how it’s still early days in the battle to end the virus outbreak, Osterholm cited a quote from former British Prime Minister Winston S. Churchill: “This is not the end, this is not even the beginning of the end, this is just perhaps the end of the beginning.”

On Friday, the World Health Organization warned that tests to identify those with antibodies to COVID-19 might not prove that the individual has immunity or is protected from reinfection.

What’s next?

That said, there are also questions over the required funding needed to get businesses back up on track and the economy moving again.

The Federal Reserve’s quick response essentially served as a bridge to aid banks and provide emergency liquidity. “Clearly, we need a public health response and we need a massive fiscal response,” said Nellie Liang, a Miriam K. Carliner senior fellow in economic studies at the Brookings Institution.

The Fed moves addressed market dysfunction, and almost always with capital provided by the Treasury department. That’s because it can lend, but cannot spend, said Liang, who believes there still is much more to be done as the economy restarts. Just because there’s some loan availability, lenders “will want to make them only to firms that are going to be viable at the end of this process. If [a business is] not viable after COVID-19, it won’t be helped by a loan that cannot be repaid,” she added.

And despite the bipartisan $2.1 trillion emergency CARES Act that was quickly signed by President Trump, additional financial stimulus bailouts are expected to be forthcoming.

Karen Dynan, a professor of economics at the Harvard Kennedy School, expects a Phase 4 funding round “coming soon” as more money is needed to keep small businesses afloat. She also expects a possible Phase 5. What’s been done for unemployment insurance benefits “so far is terrific, but some things done so far will expire by early- to mid-summer, and unemployment will not be done by that point,” Dynan said.

At a White House press briefing Thursday, Trump released guidelines that doctors on his coronavirus task force put together aimed at restarting the economy, although it would be up to governors to make the final determination on what’s best for their individual states. The president’s been pushing for a quick restart of the economy.

“I don’t know what’s going to happen. I don’t know if there will be a second wave. But there will be something, and we’ll be better for it,” New York state governor Andrew Cuomo said in his daily recap of the state’s struggles to flatten the curve on the rate of virus infections. Now, he added, was the ideal time to think about “how do we take this moment, since we are paused anyway, [to] become smarter” and figure out the logistics of an economic restart, like navigating public transportation.