Businesses across the country are starting to reopen, but the economy could still face a bumpy road.
The economy could take years to rebound as it faces longer-term challenges from the sharpest downturn in history, according to Moody’s Analytics chief economist Mark Zandi.
“The damage to the economy already has been too significant, there’s going to be too many business failures,” Zandi told CNBC. “Even as businesses reopen, a lot won’t, and so many of the people who’ve lost their jobs won’t be able to get back to work.”
All 50 states have reopened their economies to some degree following widespread lockdowns to stop the spread of the coronavirus. Investors have been optimistic the economy will bounce back quickly despite record job losses, with the S&P 500 trading near its highest level since March.
Zandi warned that Wall Street is too optimistic about a V-shaped economic recovery because companies face declining earnings, delinquencies and bankruptcies. He said the unemployment rate, which surged to 14.7% in April, will spike again in May, then settle near 10% in the following months.
“We’re going to stay there until we get some kind of medical solution to the virus, and whenever that is, we’ll start to see more jobs and lower unemployment in a consistent way,” he said.
In a note Wednesday, Goldman Sachs economists warned that high unemployment could linger in part because of policies that discourage workers from returning to their jobs. Congress is weighing additional stimulus measures to help contain the economic fallout of the pandemic.
Zandi said policymakers should enact more stimulus, especially aid to state and local governments. In the long term, he warned, the biggest risk to the economy from the pandemic is a retreat from globalization.
“This is doing a lot of long-term damage to our fiscal health, to the process of globalization,” he said. “I don’t think we get back to anything we consider normal until perhaps mid-decade at earliest.”