Question

Find the most recent summary of the survey of economic forecasters in the Wall Street Journal (April 2020). What are the predictions for changes in real GDP and its major components, inflation, and unemployment? Describe the degree of consensus among the various forecasters.

Answer 1

The COVID 19 has caused great problems for people across the globe. This is primarily attributed to the fact, that most countries have implemented serious lock down measures to curtail the spread of the disease as far as technically possible for a firm.

Therefore, most economist believe that we may see the lowest possible growth rates for all economies effected by the virus and the global economy at large will see this multiply due to the connected nature of the world.

The Real GDP primarily comprises of the following the impact of which is as described.

1) Personal Consumption: -

As countries extend their lock down, and only necessary goods such as food, groceries etc are available and are permitted to open, the personal consumption has gone down significantly. And is expected to continue going down due to the lesser availability of funds with people at large.

2) Business Investment: -

It is expected that business investment would fall in the months to come. The core reason behind this is the sudden downfall in demand for goods and services. As companies remain shut, the ability to be able to generate revenue becomes minimum,

In such a climate spending money is not recommended therefore, firms would retain old profits and would not invest further money.

3) Government Expenditure: -

As a result of the current situation, economists and experts believe that the government will increase its investment as much as technically possible, This is because they are aware of the fact that the market would not rise back unless taxes are cut and key investments in areas such as infrastructure, roadways etc. is done.

4) Net Exports: -

The exports of a country are a major part of the GDP also. With global demand declining and products being limited to purchase, the global net exports would also further decline.

Thus, from the above 4 points we may conclude that Real GDP would take a hit and economists rightly believe that all major countries across the globe would experience minimum or even negative growth in the society.

As far as unemployment is concerned, it would surely rise. This is because companies would prefer to fire people instead of extend their losses due to lack in demand. Further, prices would fall down and there would be deflation in the economy as people would rather save their money than spend it due to uncertain market conditions.

Please feel free to ask your doubts in the comments section.