During a presentation at The Lodging Conference’s online event, economist Bernard Baumohl said it’s going to take years for the U.S. economy to return to some form of normal.
REPORT FROM THE U.S.—Several factors could affect the bounce back of the U.S. economy, and Bernard Baumohl, chief global economist for the Economic Outlook Group, is predicting a bumpy ride ahead.
During a presentation in conjunction with The Lodging Conference’s online event, Baumohl advised it’s time to “fasten your seatbelts.”
“We have to brace ourselves for what will unfold in the next several weeks and months in terms of the economy, the social environment and certainly the upcoming presidential election,” he said.
Baumohl said three critical factors will determine the economic outlook. The first is the course of the COVID-19 virus, “and this is critical because we cannot fix the economy without first fixing the health crisis,” he said.
“Some people are a bit more upbeat these days because they’ve seen some positive economic reports in respect to the housing market. We’ve seen better numbers on retail sales, and there’s obviously been, for some industries, a rebound in hiring,” he said.
“We have to be very careful about having a false sense of security. The reason is that an economic rebound is not the same thing as an economic recovery. It doesn’t tell us we’re on a sustainable economic recovery course right now because, again, it is the virus that is still calling the shots and will until there is a vaccine.”
Baumohl presented three scenarios, with the most optimistic being a vaccine becoming widely available in the first half of 2021. That would mean there would still be a high rate of infection and fatality into the fall of 2020, which would be compounded by symptoms of the flu.
“If we are able to at least get a vaccine in the first half of 2021, that would be our most optimistic scenario,” he said, adding that this is also the most plausible scenario.
Government financial aid is needed
The second factor impacting economic recovery is a U.S. stimulus package, which Baumohl said likely will not be passed until after the presidential election as Congress is expected to go into recess in October. So far, Congress has not been “able to even pass a skinny package in the Senate,” he said.
“And yet this (stimulus) is absolutely crucial to keep the economy going. It’s absolutely vital because we are in a race against time,” he said. “We need this financial bridge, sort of a lifeline for businesses to keep them financially afloat and also to keep households whole.”
State and local governments need emergency funding; small businesses are reliant on the Paycheck Protection Program, with many funds depleted; and more unemployment funds are needed to help people pay for food and shelter, he said.
The third factor that will impact economic recovery is the upcoming presidential election, he said.
“(We’ve got) two people with radically different personalities and profoundly different agendas,” he said. “We’re now entering the most contentious stage of this presidential race. Prepare for mayhem, prepare for a lot of disorder, right up to the election, and I am afraid even beyond.”
He added that “the Supreme Court will be reluctant participants in this election process.”
Gross domestic product is expected to contract 4.9% in 2020, and everyone wants to know when the U.S. will get back to the economic growth it was experiencing prior to the pandemic, Baumohl said.
“My answer is we’re going to have to be very patient,” he said. “It’s going to take a while. It kind of reminds me of a family that’s on a road trip and the kids are in the back asking ‘are we there yet?’ It will take years before we finally get back.”
The strongest GDP rebound is expected to occur in the third quarter of 2020 at 23.2%, but this is in response to a steep decline of 31.7% in the second quarter, he said.
Permanent changes from the pandemic
The COVID-19 pandemic will likely lead to some permanent changes for society, Baumohl said.
He said he expects more companies will transition to having more employees work from home and that there will be changes to corporate travel policies. With the realization that video conferencing is a viable communication tool and could increase productivity since employees would spend less time in airports and on flights, Baumohl said he thinks “10% to 15% of business travel is history.”
National health will also likely become a priority, he said, as this pandemic has shown that the government is “woefully unprepared” to protect American citizens from a health crisis.