Why the Next Recession Could Be Worse than the Last

A recent survey of economists found an average chance of another recession to be about 25%, up from 15% just three months ago. And while economists’ individual estimates vary, they all agree on one thing: another recession at this point in time, when the economy is so weak, would be worse than the last. Mark Zandi, chief economist at Moody’s Analytics, said a new recession “would be scary, because we don’t have the resources or the will to respond…It won’t feel like a new recession. It would likely feel like a depression.” Zandi raised his odds of a new recession from 25% to 33% just 10 days ago.

Don’t Miss: The 10 Most Indebted Governments in the World.

Six of the 21 economists responding to the survey have upwardly revised their estimates in the last few days as markets have tumbled. According to Sal Guatieri, senior economist for BMO Capital Markets, “The correction in equity markets raises the risk of recession due to the negative hit to wealth and confidence.” Even after markets rallied Tuesday, U.S. stocks have given up over 11% of their value in the last 12 days of trading.

However, David Berson, chief economist of BMI Group, says, “Stock price declines are often misleading indicators of future recessions.” After all, the economy didn’t go into a recession after the stock market crash of 1987. Still, the economy is already quite fragile, weaker than at the start of any other economic downturn since World War II. Unemployment currently stands at 9.1%, while unemployment was only 4.7% in November 2007, the month before the Great Recession began. Industrial production is 18% below pre-recession levels, and home values continue to decline.

“The reason we didn’t go into a depression three years ago is the policy response by Congress and the Fed,” said Dan Seiver, a finance professor at San Diego State University. “We won’t see that this time.” Congress approved huge spending cuts and temporary tax cuts to simulate the economy on three separate occasions between 2008 and 2010, but after the debt-ceiling battle and S&P downgrade, is unlikely to do so this time around. That means that, should the economy find itself barreling toward another recession, there will be little, if any, policy to counteract it.