How Long Until We See An Economic Recovery From The Coronavirus?

As March draws to a close, we are beginning to see numbers that indicate the first wave of individuals are recovering from COVID-19. However, the illness impacting our national and global economies, which first showed symptoms in February, appears to only be worsening.

With businesses slowing or ceasing operations and billions of people staying home worldwide, funds are sitting idle. Such economic stagnation is bad for markets. While the White House predicts an immediate and aggressive recovery, assisted by an economic stimulus, most analysts are less optimistic.

We have never dealt simultaneously with a global pandemic and a global financial crisis halting businesses worldwide. So we have no model with which to reliably predict how quickly we might recover. However, we can discuss the most important factors involved, and what that might mean for the economy.

Employment and Unemployment

As of March 30, 2020, 30 states have issued stay-at-home orders requiring most workers to stay at home and close nonessential shops. In other states, multiple businesses have laid off staff due to fear of infection or lost business. The situation globally is even grimmer — for example, India issued an order equivalent to house arrest for its entire 1.3 billion population. This loss of household income threatens the economy and the funds that drive markets across the world.

How quickly we recover will be determined by how quickly businesses put their people back to work. This, in turn, relies on several considerations:

When will stay-at-home and lockdown orders be rescinded?
When will the highest levels of risk for COVID-19’s spread pass?
How many businesses will be viable enough to rehire when the restrictions lift?

Economic Stimulus

This week, America’s leadership struck a $2 trillion dollar economic stimulus package deal, with checks to be sent to individuals in April. Other nations have passed similar deals to mend the economic challenges of this crisis. Most packages have included some or all of the following:

Cash payments to residents to help with meeting daily expenses
Loans to small businesses so they can meet payroll
Supplements and extensions to unemployment insurance
Loans for industries, cities, and states
Large funds for hospitals and other health care operations

We will see in the coming weeks how much impact the package has on global markets. Further, the global response to these waves of stimulus money may be a predictive model for the speed of recovery once COVID-19 is a thing of the past. Watching the markets in April before making any large decisions or moves is advised.

Second and Third Waves

All of the economic, social, and medical hardship the world has experienced in the past two months is the result of a single wave of infection that spread around the globe. In fact, China has already seen a slowdown of new cases and is beginning to show us what the end of an infection wave might look like.

However, experts fear a second, third, and even subsequent waves of infection could spread across the planet. If this happens, it will have two important results:

Each wave will further delay the date when the economy can begin making a full recovery.
The lull in new cases between waves can help us predict how rapid the ultimate recovery will be, as they will show in miniature what economies will do when the virus is in its own recession.

Caution is the only strong course of action until we see what happens with the multiple waves. Although not a perfect predictor, keeping an eye on China (to the degree their reporting can be trusted) and Italy may give us a sense of what we can expect the longer-term behavior of the virus and the economy to be worldwide.

The At-Home Economy

One bright point in this disaster is how resilient the at-home economy has become. Employees unable to come to work have been given opportunities to work from home. Many businesses that would have otherwise ceased operations can continue. It also means millions who would otherwise have needed unemployment payments or lost income altogether can continue to get paid.

In additional, online retail, food delivery via Internet and app orders, and streaming media have kept locked-down households making purchases. Industries like video games, canned food, streaming media, and disinfectant cleaners are actually doing better than they were before the emergency.

This factor means the “bottom” of the market dip will be shallower than it would have been otherwise. It could also mean a speedier recovery. It indicates some stocks will see a reverse life cycle to the economy as a whole, and smart investors will be shopping for investment deals.

The Debt Problem

Consumer debt represents one of the most dangerous factors in this situation, as evidenced by the global economic collapse in 2008 when the consumer debt bubble burst. This serious risk breaks down like this:

Millions of consumers suffering from COVID-19-related economic hardship will be unable to make payments on their consumer debt, mortgages, and student loans. That represents tens of billions of dollars in monthly payments missed.
Many governments are passing laws to alleviate the personal consequences of missing payment temporarily. That helps individual consumers but puts the hardship on the banks issuing the credit.
Bailouts for affected banks are in the works but could be slower or smaller than necessary to prevent that harm from cascading into the general economy.

The good news is that, unlike in 2008, most global economic powers are predicting the problem and taking steps to prevent or alleviate the damage. That said, we have little to go on to predict how well or quickly those steps might work. It is likely that credit will be more difficult to come by as the economy recovers, so acquiring lines of credit and improving your credit score now would be wise.

Infrastructure Recovery

The economic infrastructure refers to the businesses that close permanently, the lending options that suffer from debt default, and the public’s trust in the economic structures that drove the strong market before February 2020. If the damage from the virus lasts long enough and cuts deep enough, we will have to wait for those factors to be repaired before we can expect a full market recovery to begin. This suggests you’d be wise to wait for a few weeks after the economy begins to show signs of recovery so you can tell what the longer-term impact of these factors might be.

Final Thought: 3 Likely Models

Taking all of the above into consideration, we can estimate the market is most likely to respond in one of three ways:

A V-shaped recovery, as predicted by the White House, in which pent-up spending and supply needs a springboard and the markets rapidly go up once the danger has passed.
An L-shaped recession or depression, where economic and social institutions are badly damaged by the pandemic and it takes years or decades to return to 2019 levels.
A U-shaped recovery. This will have the same ultimate result as the V-shaped recovery but will take months or years, likely with a long stretch of poor performance in the middle.

Which of these models will actually happen, nobody can say yet. The best course of action at this time is to accumulate assets through saving and by taking advantage of any stimulus money available to you in your state and country. Each model suggests a different strategy to increase wealth and viability, but all three start with having enough capital to leverage when the course becomes clear.