Published in Economic Development

‘V-shaped’ economic recovery unlikely as recession could span years, economist says

BY Wednesday, April 08, 2020 05:01am

Three weeks ago, Tim Bartik laid out a series of steps to encourage a “V-shaped” economic recovery from the coronavirus pandemic. 

Doing so involves quickly boosting the health care system’s capacity to test for and treat patients of the virus while infusing trillions of dollars into the economy. The idea is a quick recession due to widespread closures followed by a quick recovery.

Tim Bartik, senior economist with the W.E. Upjohn Institute for Employment Research COURTESY PHOTO

Today, Bartik — senior economist with the W.E. Upjohn Institute for Employment Research in Kalamazoo — is much less optimistic about that V-shaped recovery. The U.S. and Michigan are more likely headed into a recession for the next two to three years, he said Tuesday, due to an inadequate federal response and shaken consumer and business confidence.

“This could be a very prolonged recession that lasts a few years,” Bartik said. “It’s unlikely it’ll be a V-shaped recovery.”

Multiple factors until now and moving forward will contribute to a recession. Testing and social distancing on the public health side haven’t been strong enough, he said.

“We probably haven’t done enough social distancing that we’ll be able to get this under control soon enough to really avoid a situation that will really shake consumer and business confidence for a while,” he said. “It looks to me like it’ll be a more gradual process to restore the economy.”

Yet some business groups, including the National Federation of Independent Business, have called on Gov. Gretchen Whitmer to relax restrictions on her stay-at-home order issued last month. The order expires on Monday, but it’s likely to be extended. Meanwhile, Senate Majority Leader Mike Shirkey has announced a task force to make recommendations on reopening business activity around the state.

Health experts say stronger restrictions now will improve the chances of economic recovery down the road. Whitmer has said recently the state is following modeling from the University of Michigan showing the state may not plateau with COVID-19 cases until the end of the month or in early May.

Beyond the public health measures, Bartik said it’s unlikely that consumer and business confidence will rapidly rebound once stay-at-home orders like Michigan’s are lifted.

The anticipated decline in state and local revenue, driven by decreased sales and income tax payments, will exacerbate the problem, he said. State officials said this month the current fiscal year budget could see a $1 billion to $3 billion shortfall. Next year, the estimates range from $1 billion to $4 billion as officials grapple with widespread budget uncertainty. It’s unclear whether the next phase of federal stimulus funding will include direct payments to states and local governments.

Bartik also called the $350 billion loan program for small businesses included in the federal stimulus plan signed into law on March 27 “too convoluted, too slow and too small. I’m concerned about a wave of small-business bankruptcies.”

However, he said there’s still time for the federal government to speed up the health care mobilization and ramp up an economic rescue, which will need targeted funding for state and local governments to avoid significant cuts in services.

Absent that: “This looks like it may end up being more severe than the Great Recession,” he said. “This will end up being the greater recession, or whatever you want to call it.”

Read 6180 times Last modified on Tuesday, 07 April 2020 18:39
SUBSCRIBE TO MIBIZ TODAY FOR WEST MICHIGAN’S FINEST BUSINESS NEWS REPORTING >