1/x Could coronavirus cause a recession? At some level I feel it's the wrong question. I think of a recessions as more than just a decline in output over x months; it's an endogenous process of declining profits, employment, demand, feeding on itself.
2/ an epidemic like a natural disaster is an exogenous event that acts on supply first and then demand, and while severity and duration vary, it is not a self-sustaining economic process. Once over, both supply and demand recover ...
3/ to pre-event levels. Think of a snowstorm that closes the schools, offices & stores for a day. The GDP drop from the previous day is horrendous. But this does not mean pre-snowstorm GDP was unsustainable or unbalanced and tells us nothing about the future path of GDP...
4/ Obviously, a severe enough exogenous event ripples over from supply to demand, from precautionary risk aversion to outright panic. It can have lasting supply effects: 9/11 raised security costs, border controls. Spanish flu may have reduced population growth in the 1930s ...
5/ But in general, we need a different mental model for an exogenous event, like an epidemic, than for standard business cycles (if such a thing still exists). -30-
Post-script: Before the virus spread outside China, there were some weak signs in US: decline in job openings, weaker PMI, flattening/inverting yield curve, cyclicals underperforming. I wouldn't dismiss the possibility this hit when US had entered a cyclical soft spot.
