New study: Coronavirus could hold economy back for decades

New study: Coronavirus could hold economy back for decades

A recent study predicts that the coronavirus pandemic could hold the economy back for decades due to a lack of risk-taking and decreased economic output.

The study, conducted by the Federal Reserve Bank of St. Louis, forecasts that the pandemic has incited fears that could reduce risk-taking behaviors by boosting the “perceived probability of an extreme, negative shock in the future.”

The research was released at the Federal Reserve Bank of Kansas City’s annual conference last week, according to USA Today.

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The study comes as officials across the country are striving for a vaccine in the hopes it will help alleviate Americans’ fears about COVID-19 and get the economy back on track. But the researchers predict that the long-term economic impact could be “many times larger” if risk-averting behaviors persist past the pandemic. 

“While the virus will eventually pass, vaccines will be developed, and workers will return to work, an event of this magnitude could leave lasting effects on the nature of economic activity,” the paper says. “Businesses will make future decisions with the risk of another pandemic in mind.”

Researchers said companies will likely be cautious of other possible unexpected disruptions to the economy, like the pandemic. 

“We learned that the world is riskier and more unpredictable than we thought,” the report says. “The shocks that hit one sector may hit another tomorrow, in ways that are impossible to foresee.”

The study makes its predictions based on the long-term effects of other economic downturns, including the Great Recession.

The pandemic has left “capital” like office buildings, vacation spots and restaurants empty; in a typical economic crisis these would be replaced, USA Today reported. But the paper indicates the coronavirus crisis has left investors cautious to fill in the voids. 

The paper says the decrease in the U.S. gross domestic product (GDP) this year could be 10 times the projected 6 percent to 9 percent drop. Economic output over 70 years could drop by 57 percent to 90 percent of a year’s worth of GDP before the pandemic began. 

The research also indicated that federal assistance to unemployed workers and small businesses could help ease the economic impact and anxious investors. But talks in Congress about an additional coronavirus stimulus bill have stalled, delaying federal assistance beyond the CARES Act in March.