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May 4, 2020

COVID-19 could stunt CT’s economy until summer 2021

HBJ Photo | Joe Cooper Downtown retailer Jody Morneault’s Stackpole Moore Tryon has pivoted to online sales since the pandemic.
By Joe Cooper

It may take more than a year before Connecticut’s economy fully recovers from the national recession caused by COVID-19-related business shutdowns, state labor officials say.

In a “best case scenario,” the U.S. and Connecticut economies will recover “early next year” in time for summer 2021, said Matthew Krzyzek, an economist for the state Department of Labor (DOL), in the May issue of the Connecticut Economic Digest, a joint publication by DOL and the state Department of Economic and Community Development.

Many economists agree that the U.S. economy has already entered into a recession due to the coronavirus outbreak. Connecticut’s $288 billion economy has especially suffered from the health crisis, as more than 430,000 residents have filed for unemployment benefits since mid-March.

“While severe, the recession will be short and the national and Connecticut economies will bounce back early next year so that by next summer we'll be back on track,” Krzyzek said. “We will then discuss the risks to this outlook which are, unfortunately, all on the downside.”

In February, DOL’s research office projected that the state’s total employment would increase 0.4% -- or by 6,946 jobs -- from the second quarter of 2019 to the second quarter of 2021 (from 1,815,649 to 1,822,595 jobs).

But February’s “baseline” forecast has now become a “best case scenario” as many retail, restaurant and hospitality businesses have been forced to furlough or layoff a massive amount of workers amid the COVID-19 outbreak.

“... for employment to achieve the levels described above, strong growth in early 2021 will need to offset the 2020 losses that are now inevitable,” Krzyzek said.

IHS Global Insight, he added, also revised its 2020 forecast of Connecticut employment downward by 74,000 jobs. IHS Global said it expects job growth in-state will begin slowly in 2021 with employment returning to previously-forcast levels by 2023.

Industries projected to suffer the most from the COVID-19-induced recession include leisure and hospitality, retail trade, other services, and transportation and utilities. The least impacted sectors will include agriculture, professional services, finance and public administration, Krzyzek said.

If the coronavirus is “effectively contained,” Connecticut’s gross domestic product (GDP) will decline by less than 10% in the second quarter ending June 30, with full recovery expected by year-end, Krzyzek said, citing scenarios provided by national management consulting firm McKinsey & Co. 

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