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The Coronavirus Contraction: An Explanation from Brian Wesbury

The Coronavirus Contraction: An Explanation from Brian Wesbury

| March 20, 2020
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The Coronavirus has had an enormous impact on the global markets and the US economy (click here to read all of EBW's commentary on the crisis).

Watch this video presentation from Brian Wesbury, chief economist at First Trust Portfolios, as he explains what's happening to the financial markets as the Coronavirus disrupts life across the planet.

Wesbury said, ""Well, welcome to the coronavirus contraction. We all know that when you shut down airports, air flights, restaurants and bars, the economy is going to have a contraction. We now believe that though we came into 2020 with strong economic growth (January and February were really strong economic growth months), March data shows weaker growth, but we expect 2nd Quarter to be a minus 10 percent real GDP quarter. One of the worst cases we have seen in a long-time. The last time a flu caused something like this was back in 1957-1958. We believe, however, this will be a short lived contraction, and growth in Q3 and Q4 to pick up and then into 2021 we will make up for lost ground in the economy, its growth and job creation in the 18 months following this contraction."

He said, "This is exactly what happened after the 1957-1958 flu, which was a really bad virus that killed a lot people (around 70,000 Americans), and so I do not expect this virus to kill this many people. I'm not trying to be a doctor or an epidemiologist, but people try and assume when we have a problem - since the 2008 financial crisis - that the next crisis will be the worst crisis ever. We keep hearing the worst case is going to happen when it comes to the infection."

Wesbury noted, "However, South Korea ramped up testing quickly (close to 280,000 tests), they found 8,000 cases. Only 3 percent of those tested had coronavirus; here in the US, testing is ramping up massively and we will see more testing. We know the number changes as testing occurs, and those tested in the US are showing clear symptoms of having the disease or they are front-line repsonders (doctors, nurses, EMTs); I believe as we test more people, we will see our rate of infection fall to South Korea levels of infection in the United States."
 

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