Predictions of a second-half rebound are based on dubious assumptions.
Many forecasters are predicting that there will be a strong economic recovery in the second half of this year after the worst of the coronavirus outbreak has passed. But to have such an economic rebound in the third and fourth quarters, one of five events must have occurred. The first four of these are positive but don’t seem sufficiently likely to serve as the basis of an economic forecast:
— First, scientists discover an effective treatment or vaccine. That would be great, but neither seems likely to happen in the next three to six months.
— Second, the virus mutates and becomes less harmful. This might happen, but hoping for a beneficial mutation doesn’t seem like a good basis for an economic forecast.
— Third, warmer summer weather in the Northern Hemisphere might dampen the rate of transmission of the virus. This outcome may happen, but it won’t help in the fourth quarter.
— Fourth, the government implements the kind of extensive track-and-trace approach used by South Korea. This would help to keep Covid-19 under control without the draconian social-distancing restrictions that are crushing the economy. But given what we’ve seen so far, this outcome seems like a long shot.