The United States economy officially entered a recession in February, a group of economists recently declared. As a result, the World Bank has predicted that the global economy will contract by 5.2% in 2020, the worst since World War II. With such dire financial implications on the horizon, some experts now predict that COVID-19 will impact the economy for the next decade.
Congressional Budget Office Projects Long-Term Blow to Economy
The Congressional Budget Office announced in early June that it expects the coronavirus pandemic to cost the United States economy $7.9 trillion over the next 10 years. This tally accounts for COVID-19 damage, reduced consumer spending, and less business investment in the years to come.
“Business closures and social distancing measures are expected to curtail consumer spending, while the recent drop in energy prices is projected to severely reduce U.S. investment in the energy sector,” said the CBO in its report.
However, Phillip L. Swagel, the director of the budget office, emphasized that “an unusually high degree of uncertainty surrounds these economic predictions,” especially because we can’t predict how the pandemic will unfold through the remainder of 2020.
Bankruptcies Spike Across the Country
Even strong, successful businesses have become victims of the economic devastation triggered by the coronavirus pandemic. In response to the virus-induced recession, large and small businesses alike are filing for bankruptcy.
According to recent data, 722 companies sought bankruptcy protection in May 2020, marking a nearly 50% increase from May 2019. Chapter 11 bankruptcy filings also surged in March and April as businesses found themselves unable to stay afloat during lockdowns and coronavirus restrictions.
“This is a sign that already weak companies are succumbing to the lockdown recession,” said Chris Kuehl, an economist with the National Association of Credit Management, which tracks bankruptcies. But even brands established as household names succumbed to bankruptcy this spring: Hertz, J. Crew, J.C. Penney, Neiman Marcus, and Gold’s Gym, to name a few.
Experts also predict airlines and companies in the energy sector to seek bankruptcy protection as time goes on.
How Long Will the Shockwaves Last?
Nobody can predict the path of the coronavirus over the next six months, but most economists agree that the ripple effects of the pandemic may drag down the U.S economy for a decade. The World Bank seems to agree, as it projected deep recessions for advanced economies including a 6.1% contraction for the U.S.
“This is a deeply sobering outlook, with the crisis likely to leave long-lasting scars and pose major global challenges,” said World Bank Group vice president Ceyla Pazarbasioglu.
Fortunately, the World Bank also predicts a rebound in 2021 as the United States seeks to overcome the pandemic recession and get back on an even footing.