US economy: Pandemic fuels double-dip recession possible

A survey of economists showed the U.S. economy is set to take a “second dip,” while a former Fed official said worst-case scenarios could be prevented with appropriate fiscal action.

It appears that the U.S. economy is at risk of a double-dip recession following its recent rally coming from its three-month-long free fall. And it is said that the resurgence of coronavirus, pandemic’s economic impact, and lack of stimulus aid had influenced the outlook heavily.

Economists foresee double-dip recession

In a survey polled by the National Association for Business Economics, about two-thirds of the respondents agreed that the U.S. economy is still in recession since its contraction last February. Nearly half of the participants also believed that the country’s gross domestic product’s inflation-adjusted rate is more likely to stay below last year’s fourth-quarter level through the second of 2022.

Economists also predict 40% of business closures would be permanent despite the labor market’s recovery. Ultimately, 80% of the surveyed economists saw a one-in-four possibility of a double-dip recession.

In a separate report, Atlanta Fed ex-president Dennis Lockhart echoed the same sentiment economists have shown in the poll as well. He explained that given the current situation—specifically how the U.S. is handling its coronavirus response and rising unemployment claims—a double-dip recession is possible.

“You have to consider a range of scenarios, and among those scenarios would be, obviously, a pessimistic one, and that could be a double-dip,” Lockhart told CNBC during his Squawk Box Asia interview on Friday.

US economy: Pandemic fuels double-dip recession possible

Before the survey and Lockhart’s sentiment, prominent economic analysts and policymakers such as Stephen Roach (Morgan Stanley Asia’s former chairman) and Esther George (Kansas Fed president) have warned about the possibility of a double-dip recession too.

More fiscal stimulus needed

A second dip, however, can be avoided if the government takes the right “fiscal action,” according to Lockhart. The former Fed president said that the country’s monetary policy is about to reach its limits and stressed how crucial stimulus checks and unemployment benefits are to the U.S. economy’s recovery.

“If there is going to be an effective effort to really ward off a worst-case scenario […], then it is going to come from the fiscal side,” Lockhart argued.

But it is not only Lockhart who thinks more financial aid is needed.

In the retail industry sector— which is fundamental in a country’s economic health—analysts said that lack of stimulus checks could impend its recovery.

Parallel to that, economists polled by NABE shared different opinions surrounding the U.S.’s current fiscal aid.

“The panel is split in its view on Congress’s fiscal response to the recession, with 40% calling the response insufficient, 37% indicating the response is adequate, and 11% saying it is excessive,” said Constance Hunter, NABE’s president.

But three out of four respondents panelists agreed that “greater or optimal” size for the next fiscal aid is $1 trillion or more, while 17% thinks it would be smaller than that.

Images courtesy of NABESeasontime/Shutterstock

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