Finance

The coronavirus’ resurgence could drag the US recovery into an L- or W-shaped trend, Bank of America says

coronavirus test testing facility swab seattle low income housingDavid Ryder/Reuters

  • New coronavirus hotspots risk turning an initial V-shaped bounce into a W- or L-shaped economic slump, Bank of America said Tuesday.
  • Optimistic labor market data and retail sales in May fueled hopes for a quick recovery, but the reopenings that drove economic activity are now contributing to the pandemic’s rapid spread across the US.
  • The bank’s economists expect half of the US to be affected by the coronavirus’ resurgence when its spread peaks.
  • “With half of the country slowly opening and half slowly closing,” economic activity could post a second plunge like that seen in March or sit at dire lows for a prolonged period, the team led by Ethan Harris said.
  • Visit the Business Insider homepage for more stories.

Fresh coronavirus outbreaks across the US are threatening early stages of a V-shaped economic recovery, Bank of America economists said Tuesday.

Data covering May and June pointed to a swift rebound in economic activity. May retail sales retraced more than half of their coronavirus decline, and the month’s jobs report showed the unemployment rate slightly falling after a historic increase. The nationwide reopening “seems to have triggered an initial V-shaped recovery,” the bank said, but the relaxed lockdowns brought dire consequences.

Much of the virus’ resurgence is concentrated in powerhouse states. California, Arizona, Florida, Texas, and South Carolina account for 37% of US gross domestic product, according to the team. By the time the virus’ rebound peaks, the economists expect half of the nation to be affected. Economic activity could plummet a second time to form a W-shaped trend or even sit at new lows for a prolonged period in an L-shaped slump, Bank of America warned.

“With half of the country slowly opening and half slowly closing, the economy could flatten out overall,” the team led by Ethan Harris said.

Read more:Goldman Sachs has formulated a strategy that could triple the market’s return within a year as volatility remains higher than normal — including 11 new stock picks for the months ahead

Bank of America’s forecast anticipated new virus hotspots, but the outbreaks’ rapid spread is adding a slew of downside risks. The current uptick in cases “shows no sign of peaking,” and a halt to reopening measures would only stop an acceleration of COVID-19’s spread. Stricter lockdowns could be necessary to fully contain the second outbreak, the economists said.

“Bending the curve will require significant changes in behavior either by law or individual choice,” they added.

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