Politico | Great Depression 2? Worries about a coronavirus-induced American calamity pile up

This story is published in a content partnership with POLITICO. It was originally reported by Ben White on politico.com on March 23, 2020.

Forecasts of doom for the American economy are quickly turning from grey to pitch black.

As Congress haggles over a multitrillion-dollar coronavirus rescue package, analysts are warning the US could be facing a prolonged depression rather than the kind of short recession and swift bounce back that President Donald Trump and his top aides expect. And they’re raising questions about whether current government efforts to cushion the economy from the damage will be anywhere near enough.

Across Wall Street and the economic world, forecasters are quickly ramping up their predictions of massive job losses and declines in economic activity by as much as an annualised 50 per cent in the second quarter of the year. They’re offering estimates unseen since the Great Depression that began in 1929 and continued for a brutal decade, reshaping governments and economies across the globe.

Morgan Stanley economists on Monday said they now expect a 30.1 per cent annualised decline in gross domestic product in the second quarter, the worst quarterly performance in 74 years. The firm’s estimates assume the virus peaks in April and May before growth starts to recover. But if the peak comes later and economic disruption continues in the second half of the year, they wrote, US growth for even the entire year will be down to levels last seen in the early 1930s.

The rescue package now being debated in Washington would involve at least US$1.6 trillion of government spending, representing just a few weeks of lost economic activity. But the hit will almost certainly be vastly larger than that, analysts say, requiring multiple congressional interventions in order to come close to offsetting the fastest economic shutdown in American history.