Coronavirus is Tanking the Economy

Economic Forecasts

Kiplinger’s latest forecast for the GDP growth rate 

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By David Payne, Staff Economist
March 26, 2020


The interruption to U.S. and global economic activity is causing a recession both here and abroad. The domino effect from many events being canceled and workers trying to work from home is likely to cause the economy to contract in the second quarter, and possibly longer, depending on how the fight against the coronavirus goes.

Expect a decline in the second quarter of 21% at an annual rate, and a drop of 2.0% for the year, nearly equaling the 2.5% drop in 2009. There is likely to be a sharp rebound in the second half of the year, but the rebound will not be completed before the end of the year. Obviously, there is a great deal of uncertainty as to the size of the declines, and how fast the rebound will be. Politicians will ultimately determine when to lift lockdown orders.

Some of the falling dominoes are consumers who will be reluctant to make major purchases while their employment status is in jeopardy. The housing market, which should have been strong because of super low mortgage rates, may slow because people are unwilling to house hunt during the crisis. Businesses will be reluctant to hire or invest in new equipment if the economic future is uncertain.

U.S. exports to China and other countries with outbreaks are likely to suffer. Imports of goods from China to the U.S. have also been disrupted, though that is likely temporary. While lower imports boost the GDP calculation for the U.S., shortages of imported inputs can be a drag on U.S. manufacturing production.

U.S. GDP grew by 2.1% in the fourth quarter, the third consecutive quarter of roughly 2% growth. While the growth rate stayed the same, some components shifted. Consumer spending growth slowed substantially from 3.2% in the third quarter to just 1.7% in the fourth quarter. Business spending on equipment contracted for the second consecutive quarter. Construction of buildings dropped heavily for the third quarter in a row. And inventories grew by the lowest amount in six quarters.

What saved growth in the fourth quarter was a huge drop in imports, one of the reasons for the flatness of inventories. Housing was a bright spot, and government spending also contributed.

Source: Department of Commerce: GDP Data

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