US economy may slump 30% in Q2 amid 'absolutely shocking' downturn, Yellen warns

America's unemployment rate is currently as high as 13% and climbing

FILE PHOTO: A security guard walks in front of an image of the Federal Reserve before the arrival of U.S. Federal Reserve Chair Janet Yellen to give a news conference following the two-day Federal Open Market Committee (FOMC) policy meeting in Washington, March 16, 2016. REUTERS/Kevin Lamarque/File Photo

The US economy is in the grip of an "absolutely shocking" downturn as it takes a "huge" hit from the coronavirus pandemic.

The economy could shrink by about 30 per cent in the second quarter while the current unemployment rate is as high as 13 per cent and climbing, former US Federal Reserve chair Janet Yellen told CNBC.

The figures point to a depression though they are "in very different form" from the US Great Depression.

"This is a huge, unprecedented, devastating hit, and my hope is that we will get back to business as quickly as possible,” Ms Yellen said.

The US has the highest number of coronavirus infections globally, overtaking Italy and China, with the pandemic causing a huge increase in workers being laid off.

In March, the unemployment rate increased by 0.9 percentage points to 4.4 per cent, the biggest jump since January 1975, according to an April 3 statement by the US Bureau of Labour Statistics.

The number of confirmed coronavirus cases in the US reached 368,376, while the death toll stood at 10,986, according to the Johns Hopkins University coronavirus tracker. A total of 19,828 people have recovered.

Ms Yellen cast doubt on whether an economic recovery in the US could take a V-shape, whereby the sharp and swift downturn is followed by a steep upturn once the deadly, fast-spreading virus is contained.

"I think a 'V' is possible, but I am worried that the outcome will be worse and it really depends to my mind on just how much damage is done during the time that the economy is shut down in the way it is now," she said.

The shape of the recovery will be determined by how quickly employers bring back workers and whether consumers will resume spending once social distancing measures are rolled back.

The latest data in the US has shown the staggering toll that the coronavirus pandemic has taken on the economy.

A record 6.64 million Americans applied for unemployment benefits in the week ending March 28, according to an April 2 statement.

This more than doubled the previous weekly record of 3.3 million, set in the prior week ending March 21.

“The more damage of that sort is done, the more likely we are to see a ‘U,’ and there are worse letters like ‘L,’ and I hope we don’t see something like that,” Ms Yellen said.

 

US President Donald Trump signed a historic $2.2 trillion (Dh8.08tn) economic stimulus package on March 27, with provisions for companies and unemployed workers.

The Fed has also taken measures to help companies weather the impact caused the coronavirus, which has crippled the economy.

The global number of confirmed coronavirus cases reached 1,348,184 while the death toll stood at 74,816 on Tuesday. A total of 284,802 people had recovered.

The pandemic has hit the global economy, prompting governments to roll our economic stimulus packages and central banks to cut interest rates to help companies and citizens cope with the unprecedented fallout.

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