Will the coronavirus pandemic cause a recession?

Chicago Booth survey: Majority of economists predict downturn, disagree on duration

The World Health Organization has declared a global pandemic as COVID-19, popularly known as the novel coronavirus, spreads rapidly across the world. As tumbling stock markets reveal growing fears about the potential economic impact, the Initiative on Global Markets at the University of Chicago Booth School of Business surveyed both its U.S. and European economic experts on the likelihood of a major recession.

The panelists also weighed in about the relative importance of the supply and demand channels through which COVID-19 is affecting and will affect the economy. European economists further considered the Eurozone’s readiness to combat the economic effects of the virus.

A majority of respondents agreed a recession is likely, with a bigger majority among European panelists than U.S. panelists.

The experts were also able to include short comments when they participated in the survey. These indicate a broad consensus across both panels that there will be a sharp downturn in the economy, but less agreement on how prolonged the dip is likely to be.

For example, Prof. Anil Kashyap of Chicago Booth, who referred to the National Bureau of Economic Research’s definition of a recession, commented: “A sharp slowdown is likely; whether it will be persistent enough to rise to the level of a recession is not clear yet.”

And Jean-Pierre Danthine of the Paris School of Economics, who, like Kashyap, said he was uncertain, noted: “Two quarters of negative growth, yes; major recession: very uncertain, depends notably on policy reactions.”

Among the small number of experts who disagreed that a major recession is likely, Stanford University’s Kenneth Judd wrote, “If it is like ordinary flu, then (the) economy should quickly recover. COVID-19 only threatens old and feeble economic expansions.”

Among the majority who agreed or strongly agreed with the statement that a major recession is a likely consequence of the pandemic (62% of the US panel and 82% of the European panel), several note the economic impact of the measures being taken to contain the pandemic. For example, Elena Carletti of Bocconi University said, “The contagion rate worries more than the mortality rate itself as it shuts down the whole economy to contain effects on the health system.”

Along similar lines, Patrick Honohan of Trinity College Dublin responded, “Even if (the) death rate is low, it will be because containment has been effective, and that will adversely affect aggregate supply and demand.” Luigi Guiso of the Einaudi Institute for Economics and Finance added, “To stop its spread it requires stopping economic activity altogether—a major supply shock.”

And Richard Schmalensee at the Massachusetts Institute of Technology commented, “‘Major’ might be a bit too strong, but the precautionary measures being taken in many countries will have a significant disruptive effect.”

—For responses from more economists, read the rest of this story at Chicago Booth Review. Full survey results and comments from both U.S. and European expert panels are available at the website for Chicago Booth’s Initiative on Global Markets.