US economy headed for recession

The coronavirus pandemic has brought the entire world to a standstill, and the United States is no exception. Most of the country has been in various stages of lockdown since March, with the strictness of the rules varying from state to state. However, recently President Trump has been advocating for opening up and loosening restrictions in order to provide a boost to the flatlining economy. While he would have you believe that the worst of the pandemic is behind us and opening up the country would soon get the economy back on track, this is not quite the case.

The United States has had over 1.8 million cases of the coronavirus, easily the most in the world, with over 100,000 fatalities as well. Despite this, there is a push to reopen the country in a bid to regain the millions of jobs lost due to the lockdown measures. There will definitely be a rebound as businesses open up again, and this is happening extremely quickly. At the moment, just about 500 countries, contributing about 10% of GDP, are still under lockdown, while just a month ago the corresponding figure was over 2,600 counties accounting for more than 30% of GDP. At this rate, the entire country will be open for business by mid-June. A lot of industries will benefit from this, not least the gambling and casino industry. This has been one of the hardest-hit sectors, with many people losing their jobs with physical casinos having to shut down due to the lockdown measures. However, there has been some respite, with most people turning to online casino slots in this time to be able to meet their entertainment and gambling needs.

Nevertheless, even with the economy opening up, any recovery will take a long time. Real GDP will only recover about half of the losses we have seen recently, and while millions of people who are currently furloughed will be brought back into the workforce, millions will also be laid off permanently. The unemployment rate, which is at about 15% currently, will settle at around 10%, which, for context, was the unemployment rate at the height of the financial crisis a decade ago.

Secondly, any recovery will not be complete till there is a vaccine that is widely available. Even with businesses restarting, the threat of a second wave remains, perhaps even more so with people going back to work, and so does the threat of another recession, known as a double-dip recession. Further, even if there is no second wave, the fear and uncertainty around the virus will have a huge negative impact on business hiring and investment. It is unlikely that businesses will make major hiring decisions during this time, and so the expectation that the economy will bounce back immediately is foolish, to say the least.

Another issue is the fact that this is a global phenomenon. In the past, other parts of the world have been able to deal with recessions better and thus have been able to contribute to global growth. In fact, China was one of the biggest contributors in this manner in the aftermath of the last financial crisis. However, there will be no global growth leaders in this crisis, with every country having been hit hard by the virus.

US consumers will not be the driving force behind the recovery as we have seen in the past. Low and middle-income households are set to be hit the hardest, with unemployment, reduced pay and longer hours all eating into their productivity. The stock market is also set to remain uncertain, as even with the recent rally it remains well below pre-crisis levels.

Thus, the responsibility for being the engine for a recovery falls on the Trump administration and on Congress. The $2.4 trillion package already approved is not going to be enough, and there is going to be a need to approve another fiscal rescue program very soon. House Democrats have passed a further $3 trillion package, but the Republicans and Trump are reluctant, with concern over a rising fiscal deficit and increasing debt.

Their argument, that the recovery will be strong enough to make these funds unnecessary, is baseless, and the need to be fiscally prudent is not pressing enough at the moment. Rather, the need is to provide Americans with all the help they can get as they struggle to come to terms with the new reality.