Economics: Why The Economic Coronavirus Fears Are Overblown

 (Drivebycuriosity) - There is a lot speculation that the coronavirus will cause a recession. In most countries a recession is defined as two back-to-back negative gross domestic product (GDP) quarters. The US goes her own way, as usual. Here a board, the National Bureau of Economic Research (NBER), decides when a recession starts and when it ends. They focus on economic indicators such as real income, employment, industrial production and retail sales.

I feel sorry for those who got infected but I think the fears for the US economy are overblown and a coronavirus-caused recession is unlikely. In China the number of new cases already have been falling for a while, a sign that the epidemic can be constrained, and outside of some regions in South Korea, Italy, Iran and Japan new cases have been sporadic  (.cbsnews ). Airlines & cruise ship operators are suffering, but the general US economy is unharmed so far. The negative impulses from the virus are getting compensated - maybe even over-compensated - by strong positive side effects.

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The coronavirus hysteria reduced global oil prices (represented by the futures on Brent Crude Oil chart above) sharply.

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As a result gas prices at US pumps are suppressed (chart above). Cheaper energy works like a tax cut and is stimulating the economy because consumers have more money in their wallets and companies have lower costs.

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Interest rates are also falling - accelerating their long term trend - because hedgefunds and other other professional investors are seeking financial safe heavens (10 Year Treasury Rate charts above). So we have already two strong trends which are stimulating the economy. And the Fed cut her interest rates just some minutes ago.

We also learned from China that more people are working, learning & shopping from home which is fostering digitization and so rising efficiency & productivity of the economy ( driveby ). I believe that the negative coronavirus impact on real income, employment, industrial production and retail sales will be weak and very short lived - shorter than a quarter - and will be be followed by a v-shaped recovery.