A prolonged economic recovery may signal further volatility ahead
Best-case scenario for recovery? This week’s chart looks at 3 scenarios for restarting our economy and the impact each might have on U.S. GDP.
April 17, 2020 | 1 minute read
Markets saw continued volatility this week, bouncing on Tuesday as investors grew optimistic about the potential that parts of the U.S. economy might soon reopen, before quickly reversing as retail sales data and initial unemployment claims painted a stark picture of the current economic decline.
As recent market gyrations may indicate, predicting the ultimate depth or magnitude of the virus’s economic impact is a difficult, if not impossible, task. Against this backdrop, The Conference Board put together a range of potential scenarios by which investors may think about an eventual U.S. economic recovery.
According to their analysis, U.S. GDP would decline by -1.6% in a best-case scenario that includes a May reboot and a V-shaped recovery. In a worst-case scenario, the U.S. economic growth would fall -6% in 2020, or more than twice the GDP decline of 2009.1
While the stock market has made a significant recovery since late March, the U.S. economy continues to face substantial challenges, including a likely contraction this year even under a best-case scenario. Markets are forward-looking and their movements do not always correlate to economic activity; however, investors may be wise in seeking to protect their portfolios against further bouts of volatility given the nature of today’s economic challenges.