Wednesday, March 18, 2020

18/3/20: Past Recessions and COVID19 Crisis

As governments around the world are revising the expected duration of the extraordinary restrictive measures aimed at containing COVID19 pandemic, it is worth looking back at the history of past recessions by duration:

The chart above clearly shows that U.S. recessions (generally historically shallower and less prolonged than those in Europe) have been lengthy in duration, with only two recessions lasting < 8 months and only six lasting less than 10 months. The 1918-1919 recession was preceded by the Spanish Flu epidemic, but the recovery from the recession was also supported by the end of the WW1. Some more on the Spanish Flu pandemic effects on the economy can be found here:

The 1918-1919 recession was not an isolated incident, as it was followed closely by the twin recession of 1920-1921. The joint episodes lasted 25 months. Similarly, the 1980 and 1981 twin recessions should also be treated as a joint episode of 22 months duration. Adjusting for these, average recession has been lasting 15 months, not 13 months, with only four recession of duration < 10 months.

Should, as now expected, the Covid2019 pandemic cause a global recession, it is unlikely to be short-lived, implying that any fiscal and monetary supports required to ameliorate the crisis core effects will have to be in place for much longer than the 2-3 months currently implied by the crisis contagion and social distancing restriction.

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