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23 Jul, 2020 08:33

US headed for double-dip recession as coronavirus shows no signs of slowing down – veteran economist Stephen Roach

US headed for double-dip recession as coronavirus shows no signs of slowing down – veteran economist Stephen Roach

A resurgence of Covid-19 cases in the US poses a great risk for the world’s largest economy as it faces the high probability of another steep downturn, former Morgan Stanley Asia chairman Stephen Roach warns.

“The odds of a relapse, not just the virus but in the economy itself — the so-called dreaded double-dip, is very real,” the veteran economist and senior fellow at Yale University said in an interview to CNBC.

A double-dip recession, also known as a W-shaped recession, means that an economy recovers from a shock and even enjoys a short period of growth, but then faces another round of pain. The US last experienced a double-dip recession in the early 1980s.

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Roach added that low demand could cause trouble for businesses and the job market, while we may see a wave of corporate bankruptcies in the coming months. Comparing the situation in the US with what we saw in China, the first country to be hit with the Covid-19 outbreak, he said that consumer demand cannot bounce back soon due to health concerns that still exist.

“Both economies were able to bring production back quickly, but they’re struggling to bring consumer demand back especially for face to face services where individuals are fearful of getting re-infected.”

As the virus was starting to spread across the globe, the economist warned that the economic damage would be worse than that of the SARS epidemic nearly two decades ago, as Covid-19 came at a time of much greater economic vulnerability. In recent opinion pieces, Roach said the pandemic could also crush the US dollar and challenge its role as the global reserve currency.

Other analysts, including veteran emerging markets investor Mark Mobius, have been warning that the pandemic could put the US at risk of a W-shaped recession. While the number of coronavirus cases continues to rise after states started to lift restrictions, hitting 3.9 million as of Thursday, Moody's Analytics said that rapid re-openings could have reignited the pandemic.

“The economic damage is already becoming clear. Initial claims for unemployment insurance, which fell sharply from mid-April to early June, have been stuck at over 2 million per week,” Moody’s Analytics’ Mark Zandi wrote, adding that more job losses are yet to come, as cited by Xinhua.

“This sounds like a double-dip recession or W-shape outlook,” he said. However, the analyst noted that a relief package of at least $1.5 trillion, which is currently being debated by lawmakers, may help to avoid a second painful downturn.

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