There have been a lot of predictions about the severity of economic disruption caused by the coronavirus pandemic, and most are pretty abysmal, from record GDP loss in the second quarter to predictions of double-digit unemployment. However, the latest forecast from Beacon Economics sheds a more positive light on the recent economic events, predicting a bad quarter but not necessarily a recession.
“We can quibble for hours over the definition of what a recession is,” Christopher Thornberg, founding partner of Beacon Economics, tells GlobeSt.com. “For me, a recession is a protracted period of weak economic growth. While I think this is going to be really jarring and the second quarter is going to be ugly, I think that it is reasonable to expect a bounce back in the third quarter. I think that is completely reasonable to assume.”
According to Thornberg, the current job losses are more akin to widespread furloughs than real job loss, in that the jobs will return once the pandemic subsides. “These are job furloughs, not job losses in any traditional sense,” he says. “When we get passed this virus, the economy is going to look like the same economy. Contrast that to what happened prior in the great recession when the subprime lending industry collapsed, residential real estate collapsed, some parts of commercial collapsed and the financial industry collapsed. You are talking about millions of jobs that weren’t on furlough for a month; these are jobs that were eliminated from the economy. How do you equate those two things?”
Of course, Thornberg thinks there should be a response; however, he thinks the current $1.6 trillion plan is outrageous. “The only thing that you have to do is make sure that furloughed workers are taken care of and that businesses can get short-term loans to get through a couple of months of hard time,” he says. “There isn’t a relevant business in the world that couldn’t take a two-month hit to get through a hard time.”
While Thornberg agrees that there is a significant economic impact, he also sees a swift recovery. “I am not trying to down play the severity of what is going on here. This is the single largest threat to the economy that we have seen in 10 years. This is real, and this is going to be a rough quarter,” he says. “You are going to see a lot of jarring numbers, but there is a difference between business delayed versus business canceled. I see a good bounce back, and obviously that is not the same opinion held by others in the market.”
As for the opposing opinions forecasting a severe recession, Thornberg is familiar with being contrarian. “This mentality is certainly nothing new,” he explains. “This kind of mentality is par for the course lately. I keep pointing out to people that a year ago the markets were down 20% because of an expectation that real estate would collapse over the higher interest rates and a Chinese trade war. That amounted to basically nothing. Here we go again; the same sort of phenomenal overreaction.”