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Will the Coronavirus Trigger a Global Recession?

Summary:
The COVID-19 outbreak seems to have raised the odds of a global recession dramatically. But even if no downturn materializes in the near term, the outbreak, together with US President Donald Trump's trade policy, may herald the end of the era when steadily rising international trade buttressed global peace and prosperity. CAMBRIDGE – At the start of this year, things seemed to be looking up for the global economy. True, growth had slowed a bit in 2019: from 2.9% to 2.3% in the United States, and from 3.6% to 2.9% globally. Still, there had been no recession, and as recently as January, the International Monetary Fund projected a global growth rebound in 2020. The new coronavirus, COVID-19, has changed all of that.

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The COVID-19 outbreak seems to have raised the odds of a global recession dramatically. But even if no downturn materializes in the near term, the outbreak, together with US President Donald Trump's trade policy, may herald the end of the era when steadily rising international trade buttressed global peace and prosperity.

CAMBRIDGE – At the start of this year, things seemed to be looking up for the global economy. True, growth had slowed a bit in 2019: from 2.9% to 2.3% in the United States, and from 3.6% to 2.9% globally. Still, there had been no recession, and as recently as January, the International Monetary Fund projected a global growth rebound in 2020. The new coronavirus, COVID-19, has changed all of that.

Early predictions about COVID-19’s economic impact were reassuring. Similar epidemics – such as the 2003 outbreak of severe acute respiratory syndrome (SARS), another China-born coronavirus – did little damage globally. At the country level, GDP growth took a hit, but quickly bounced back, as consumers released pent-up demand and firms rushed to fill back orders and re-stock inventories. 

It is becoming increasingly clear, however, that this new coronavirus is likely to do much more damage than SARS. Not only has COVID-19 already caused more deaths than its predecessor; its...

Jeffrey Frankel
Jeffrey Frankel, a professor at Harvard University's Kennedy School of Government, previously served as a member of President Bill Clinton’s Council of Economic Advisers. He directs the Program in International Finance and Macroeconomics at the US National Bureau of Economic Research, where he is a member of the Business Cycle Dating Committee, the official US arbiter of recession and recovery.

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