Just How Bad Is It? Here’s The Economic Damage The Coronavirus Will Cause, According To Major Banks

Topline: As the coronavirus continues to roil stock markets and leads to widespread business shutdowns across the country, a growing number of top banks on Wall Street have been issuing increasingly dire forecasts on the economic turmoil caused by the pandemic, with many saying that a recession will hit in 2020—if it hasn’t already done so.

  • Goldman Sachs economists on Friday forecast an unprecedented 24% hit to U.S. second-quarter GDP, following a 6% decline in the first-quarter, due to coronavirus; the bank also expects unemployment to surge to 9% and full-year GDP for 2020 to fall 3.8% on an annual average basis.
  • Bank of America warned late on Thursday that a recession due to the coronavirus pandemic is already here: “Jobs will be lost, wealth will be destroyed and confidence depressed,” the bank’s U.S. economist, Michelle Meyer, wrote in a note, as the Bank of America also forecast the economy to “collapse” in the second quarter, shrinking by 12%, with GDP for 2020 taking a 0.8% hit. 
  • Morgan Stanley warned investors of the same thing: “Global recession in 2020 is now our base case,” the firm’s chief economist, Chetan Ahya, wrote in a recent note, predicting global economic growth to slow to 0.9% this year—the lowest level seen since the 2008 crisis.
  • Deutsche Bank predicts that the U.S. economy will contract by 12.9% in the second quarter, with the coronavirus-driven declines set to “substantially exceed anything previously recorded going back to at least World War II,” according to a note Wednesday.
  • UBS similarly sees a “massive contraction” of almost 10% in second-quarter GDP, while also predicting a deep recession in the first half of 2020 due to the coronavirus pandemic.
  • But: Most of the economists at the big banks listed above still predict the economy will rebound later in 2020, or by 2021 at the latest.

Surprising fact: Dubravko Lakos-Bujas, chief U.S. equity strategist for JPMorgan Chase, is so bullish on a rebound that he expects the S&P 500 to reach 3,400 points, or 47% higher than its current level, by 2021. Before that happens, he says, GDP will shrink 14% in the second quarter—a steeper decline than the 8.4% drop experienced in the fourth quarter of 2008.

Tangent: Billionaire investor Ray Dalio, who heads Bridgewater Associates—the world’s largest hedge fund, told CNBC last Thursday that the coronavirus pandemic will cost U.S. corporations up to $4 trillion. “What’s happening has not happened in our lifetime before. … What we have is a crisis,” Dalio said, also adding, “a lot of people are going to be broke.”

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