Seven Threats to the Economic Recovery from COVID-19
Professor Campbell Harvey identifies pitfalls that could slow the U.S. economic recovery
Since the beginning of the COVID-19 pandemic, finance professor Campbell Harvey has remained optimistic that the U.S. could recover fairly quickly from the economic setbacks it is facing as soon as the world sees a viable vaccine.
“The cure to this economic crisis is biological,” Harvey said recently in a live discussion on the LinkedIn page for Duke University’s Fuqua School of Business. “I believe that we will have a viable vaccine in the fall of 2020 and it will be deployed by 2021. That's my forecast. However, there's certain things that can disrupt the accuracy of that forecast.”
In his talk, Harvey described seven risks that could slow down or derail the economic recovery from the pandemic shutdown:
No. 1 – Rose-colored glasses: Some may be too optimistic that the pandemic is receding if they see a decline in infection rates or deaths, and that can lead them to become careless, which will cause COVID cases to surge, he said.
No. 2 – Biological setback: The country could experience setbacks with promising vaccines that turn out to be less effective than anticipated, a virus that mutates or subsequent waves of infection as businesses and schools open back up.
No. 3 – Debt overhang: Companies that have taken on debt to weather the crisis, or consumers that have over-extended themselves could face large debt burdens coming out of the pandemic that will limit their spending and potentially slow future growth.
No. 4 – Policy fumble: Only 8% of government support has gone to vaccine development and deployment and testing technologies. Given the solution to the crisis is biological, is that the right balance?
No. 5 – Unexpected inflation: The market is discounting the possibility of a surge in inflation, but inflation remains a credible risk, Harvey said.
No. 6 – October surprise: The final weeks leading up to the U.S. presidential election could include big announcements, including economically-oriented changes that could derail the country’s recovery, Harvey said.
No. 7 – Fire drill: Another pandemic could be 100 years away, or right around the corner, and policymakers need to make sure the country is ready in case COVID-19 turns out to be merely a ‘fire drill’ for something more severe.
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