The global recession triggered by the Coronavirus Pandemic could lead to years of recovery. This is the warning given by Carmen Reinhart, the World Bank’s chief economist.
According to Reinhart, the initial recovery will be swift as lockdown measures are relaxed in developed nations. However, developing nations and the world’s poorest will struggle to come back. Poverty rates are likely to rise, and it could take up to five years for economic conditions to return to pre-2020 levels.
Speaking from a virtual conference in Madrid on Thursday, Reinhart said that “The real recovery, how long it takes for the average person to recover the income they had before the crisis, the GDP per capita, this will take at least five years.”
The World Bank has looked at the 2008-2009 financial crisis as a reference point. That crisis was predictable, and it was relatively simple to see where the rebound would be. The Coronavirus Pandemic is more challenging because various uncertainties surround the control of the virus, when and if vaccines will be available, and whether the virus will mutate and come back in waves after 2020.
American Economy Should Be One of the First to Recover
For investors and everyday Americans, some comfort will come from knowing that the economy is already beginning to recover. States are reopening and unemployment is now just over 8%. While there are still millions of Americans without work, jobs are being readded to the economy each month.
The United States Federal Reserve expects that unemployment could be down to 4% by the end of 2021.
New jobless claims fell in mid-September, from 893,000 to 860,000. This is a significant reduction from the more than 6 million new jobless claims that were reported at the beginning of April.
As of today, 29.7 million people are receiving state and federal unemployment benefits. 22 million jobs were lost earlier this year, but around half have now been recovered.
Small businesses have been heavily impacted, with thousands closing in recent months.
Investors Should Watch the Economy Closely
The unemployment rate can directly impact corporate earnings. With a gradually recovering economy, consumer-facing businesses are likely to see dips in revenue.
The best stocks are those that are backed by companies with strong pandemic strategies. Tech companies, essential retailers, healthcare providers, and biotech companies are among the most reliable considering today’s conditions.
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