Coronavirus Will Cause Our Next Recession
A Black Swan has Appeared – Coronavirus will cause Our Next Recession
In a previous post entitled The Black Swan published in August, 2019, I wrote,
“though more common now, especially in Australia, Europe, and Asia, black swans (Cygnus atratus) were once thought to be almost extinct… so rare that a sighting of one was considered to be an unexpected, improbable event.
Today, The Black Swan is a metaphor for an unpredictable, unforeseen, random event, typically one with extreme consequences. Today’s best technology cannot predict their cause or emergence. The only thing we know for certain is that someday, somewhere, another Black Swan will appear.”
And just 6 months after I wrote that article …
A Black Swan has appeared – the Coronavirus:
The Coronavirus and the pandemic it may cause is, without a doubt, a Black Swan… so rare as to qualify as the unexpected, improbable event previously defined. And by definition, it is predicted to have extreme consequences. Our latest Black Swan triggered the precipitous drop in the markets around the world and, in my opinion, our next recession.
I think history will someday show that this recession started in the third week of February, 2020 as evidenced by the 12.4% drop in the DOW. I hope the crashing stock market and all the markets recover, that it was a temporary drop with a quick recovery, that I am dead wrong and that I will have to “eat crow” for the rest of my life like so many other prognosticators.
Recession – Definition:
The economic cycle has four stages: expansion, peak, contraction, and trough. If the contraction is severe or the trough prolonged, a recession may follow.
A recession is generally defined as two back-to-back quarters of negative economic growth, usually measured by gross domestic product (GDP) — that is, the total value of final goods and services produced within a certain period (in this case, usually a quarter of a year).
Influenza Pandemics from the past 100 years:
|Spanish flu||1918-1920||H1N1||China||40-50 million deaths|
|Asian flu||1957-1958||H2N2||China||1-2 million deaths|
|Hong Kong flu||1968-1970||H3N3||China||500,000 – 2 million deaths|
|Swine flu||2009-2010||H1N1||Mexico||Up to 575,000 deaths|
Source: Reviewing the History of Pandemic Influenza: Understanding Patterns of Emergence and Transmission 2016 Dec, 6, Patrick R. Saunders-Hastings* and Daniel Krewski, Lawrence S. Young, Academic Editor
Is the Real Estate Market going to recede?
Given the likelihood of the Coronavirus reaching pandemic proportions and the disruptions it would cause in the workforce, it would seem most all industries, including real estate, will be negatively affected. I expect the real estate market to recede. Demand will fall and supply will increase. Values will decline. How much? Who knows?
Do Pandemics cause recessions?
Yes – MarketWatch: If the coronavirus isn’t contained, a severe global recession is almost certain
Maybe – Vox: Will coronavirus cause a global recession? We still don’t know.
Yes – AXIOS: The growing coronavirus recession threat
Maybe – The Conversation: Stocks are plummeting – could coronavirus cause a recession?
So, the jury is still out. Many say “yes”, a pandemic can cause a recession; some say “maybe” but most say a pandemic “could” cause a recession.
The Good News:
The impact to economies from pandemics is usually short lived. A vaccine is usually developed to halt their spread or they run their course. The four previous pandemics had lifespans of from 1 to 2 years. Today’s technologies allow us to develop vaccines more rapidly. Perhaps the rapid development of an effective vaccine will prevent the US from suffering back to back quarters of negative growth. I hope so.
Shortages in inventories may temper any recession in Colorado. Colorado did not suffer the severe downturn that other states did in The Great Recession (Real Estate Depression beginning in 2007).
Has the next recession started? I say, yes.
What say you?