Stephen Roach

Opinion | Despite coronavirus vaccine hope, US must brace itself for a winter of despair

Vaccination is unlikely to bring about so-called herd immunity until mid-2021. For a vulnerable US economy entering lockdown again, the case for a double-dip recession is compelling

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Servers deliver food to a table at a pop-up restaurant set up in Times Square in New York on October 23. Consumer spending accounts for 68 per cent of the US economy. But with Covid-19 still raging, services consumption – restaurant dining, in-person shopping, travel – is unlikely to recover soon. Photo: Reuters

Stephen Roach

Published: 4:15am, 26 Nov 2020Updated: 5:25am, 26 Nov 2020

Suddenly, there is a credible case for a vaccine-led economic recovery. Modern science has delivered what must certainly be one of the greatest miracles of my long lifetime. Just as Covid-19 dragged the world economy into the sharpest and deepest recession on record, an equally powerful symmetry on the upside now seems possible.

If only it were that easy. With Covid-19 still raging – and rates of infection, hospitalisation and death now spiralling out of control again – the near-term risks to economic activity have tipped decidedly to the downside in the United States and Europe.

The combination of pandemic fatigue and the politicisation of public health practices has come into play at precisely the moment when the long anticipated second wave of Covid-19 is at hand.

Unfortunately, this fits the script of the dreaded double-dip recession that I warned of recently. The bottom line bears repeating: apparent economic recoveries in the US have given way to relapses in eight of the 11 business cycles since World War II.

The relapses reflect two conditions: lingering vulnerability from the recession itself, and the likelihood of aftershocks. Unfortunately, both conditions have now been satisfied.

Vulnerability is hardly debatable. Notwithstanding the record 33 per cent annualised snapback in real gross domestic product growth in the third quarter of this year, the US economy was still 3.5 per cent below its previous peak in the fourth quarter of 2019.