A new report from the BlackRock Investment Institute predicts the coronavirus pandemic will lead to just a fraction of the economic damage caused by the 2008 financial crisis.
“The game-changer is that we now know we are building a bridge to somewhere, providing more clarity for governments and companies about getting to the post-COVID stage,” BlackRock said. “That will make it easier to absorb any near-term disappointments and have greater confidence in the restart plan.”
Moderna announced its vaccine was more than 94% effective in late-stage trials on Nov. 16. In reaction to the news, the Dow-Jones jumped by 470.63 points and the S&P 500 climbed 1.2% to 3,626.91, an all-time closing high.
The recent surge in cases and expected difficulties over the winter could plunge economies in the short term, but BlackRock predicts things will re-accelerate in 2021. Other experts tempered expectations, saying it’s too early to jump to any definitive conclusions.
“It’s probably too soon to say with any confidence,” Federal Reserve Chair Jerome H. Powell said. “From the very start, we’ve been concerned about longer-run damage to the productive capacity of the economy … we’ve got a long way to go.”
While the U.S. economy may eventually make a full recovery, many businesses that were forced to close down due to the coronavirus pandemic will never reopen. Workers, women in particular, also face long-term blemishes on their resumes and career plans. Powell said he and colleagues continue to push Congress to pass another stimulus bill to avoid a massive fallout from the looming winter months.
Axel Weber—chairman for UBS, a Swiss multinational investment bank and financial services company—shares this trepidation. In an interview with CNBC, he encouraged Americans not to fall into a false sense of security because of the recent vaccine reports. A full recovery for the U.S. economy post-coronavirus is still far off.
“It would be at least a year to go back to pre-crisis levels of GDP (gross domestic product). It’ll take another year or two to be anywhere near getting unemployment and pre-crisis growth back and so it would be quite a long recovery that we’re facing,” Weber said.
Yet Blackrock still believes the total damage from COVID-19 will be just a fraction of that from the 2008 crisis.
“Positive news on COVID vaccines gives us greater confidence that the economic restart can re-accelerate in 2021—and that the cumulative activity loss from the virus shock will ultimately be a fraction of that seen after the global financial crisis,” BlackRock said.
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