ABC chief economist: We are in a recession

However, it will be short-lived.

By Kyle Schwarm, ABC of Wisconsin Marketing & Communications Director

ABC Chief Economist Anirban Basu said today that we are essentially in a recession, now that so much in our economy has come to standstill.

Basu, who spoke with members via a webinar today, says while supply chains may be interrupted by the coronavirus worldwide, the economy is in a “supply shock.”

“It’s a supply shock of a caliber unknown in modern times,” he said. Supply shock includes factory closings, cutbacks in service provisions and supply chain disruptions.

The recession of 2001, for comparison, was “demand shock” to the stock market. Demand shock includes loss of confidence, business and tourism travel reductions as well as cutbacks in education and entertainment services. Basu says as we pumped cash into the system with relatively low interest rates, the housing market strengthened until the great recession hit around 2008. The government was able to pump life into the economy with the Troubled Asset Relief Program (TARP) and other programs to help the recovery. But this is different, Basu said.

Photo of economist Anirban Basu
ABC Chief Economist Anirban Basu

It will be short and vicious.

“You can lower interest rates to zero, but that doesn’t help me get back to work,” Basu said, because of all the quarantines and closures. People can’t work and people can’t spend money, which will cause a significant drop in growth for the second quarter.

There is some good news from Basu. While we are going to see job loss, Basu doesn’t expect it to reach 20%, as some have suggested.

Perhaps even more encouraging, Basu said the recovery for this recession will be sharp and profound.

“It will be short and vicious,” Basu said. “Bam!” There will be massive expansion, he said. “Interest rates will be low and demand will be high,” Basu said.

“You know, they’re going to want to go to the movies or want to go to restaurants because humans are social animals,” Basu said. And people will be nicer to each other, he predicts.

The one thing that could dramatically shorten the recession, according to Basu, are discoveries in therapy and a vaccine for the virus. He is confident that will happen soon, with so many brilliant minds working on it.

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