- Morgan Stanley now thinks that US GDP will plunge 30.1% in the second quarter amid the coronavirus pandemic, according to a Sunday note from economists led by Ellen Zentner.
- “As social distancing measures increase in a greater number of areas and as financial conditions tighten further, the negative effects on near-term GDP growth become that much greater,” Zentner wrote.
- The extreme contraction will push the unemployment rate from current historic lows to an average 12.8%, one of the highest on record since the 1940s, the note said.
- Read more on Business Insider.
Morgan Stanley is anticipating even greater economic damage from the coronavirus pandemic than previously thought.
A sharp drop-off in economic activity in March will cause first-quarter gross domestic product to contract at a 2.4% annualized pace, and will be followed by a 30.1% plunge in the second quarter, according to a Sunday report from US economists led by Ellen Zentner.
“As social distancing measures increase in a greater number of areas and as financial conditions tighten further, the negative effects on near-term GDP growth become that much greater,” Zentner wrote.
The call is the latest in a slew of major banks forecasting a devastating economic decline amid the coronavirus pandemic that has so far killed more than 15,300 and infected nearly 350,000 people around the world.
As the coronavirus pandemic worsens and keeps people across the country at home, Morgan Stanley expects personal consumption expenditures to decline 31% as consumers cut back on travel, dining out, and other services. The extreme contraction will push the unemployment rate from current historic lows to an average 12.8%, one of the highest on record since the 1940s, according to the note.
“As we move into April, it will be both a surge in layoffs as well as a shutdown in hiring that will bring about the darkest days for the labour market since the financial crisis,” said Zentner.
The firm expects job losses to largely follow the GDP pattern, with the harshest declines upfront. In May, Morgan Stanley expects the US economy will lose close to 17 million jobs from the peak in February, a much swifter decline than in the 2008 recession.
“The evolution of the unemployment rate ultimately will be determined by how well fiscal stimulus is able to support small businesses, how quickly economic activity normalizes, and how attached to the labour market unemployed workers remain,” Zentner wrote.
As the coronavirus outbreak eventually subsides, Morgan Stanley expects that consumption will resume at its pre-virus levels and that the economy will bounce back, growing 29.2% in the third quarter. That will stabilise to a 3.3% annual growth rate in 2021, a faster pace of recovery than was seen in 2008, according to the note.
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