JPMorgan slashes its GDP forecast for next quarter - now sees a 25% contraction and imminent recession despite 'Herculean' stimulus measures'
- JPMorgan lowered its first-half US GDP forecast Wednesday after projecting a deep recession just one week earlier.
- First-quarter growth will slip to -10% from its previous -4% estimate, the team led by chief economist Michael Feroli wrote. Second-quarter expansion will plunge to -25% from -14%.
- The bank kept its second-half estimate the same at 6%, noting severe financial headwinds and tight capital conditions offset hopes for a stronger rebound.
- While the Senate's "Herculean stimulus effort" will provide short-term aid for struggling firms, the package "is unlikely to overcome the effects of the COVID-19 shock," the economists wrote.
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The pandemic will also push unemployment as high as 8.5%, the bank said, echoing record-high unemployment data released Thursday morning. Weekly jobless claims skyrocketed by 3.3 million in the week ended March 21, far exceeding the previous record of 700,000 set in 1982.Despite the heightened pessimism, the economists don't see the deeper economic trough giving way to a similarly rapid recovery. Companies' weaker balance sheets and strong financial headwinds suggest the economic rebound will look more like the era after the 2008 financial crisis than a rebound from a weather disaster, the bank wrote.
The Senate passed the Coronavirus Aid, Relief, and Economic Security Act, or CARES Act, late Wednesday, sending the bill to the House of Representatives and positioning President Trump to inject massive stimulus throughout the economy. The legislation calls for direct payments to individual Americans, bolstered unemployment benefits, and hundreds of billions of dollars in loans to floundering businesses.
Even with fresh aid flooding the US economy, JPMorgan expects firms to still grapple with tight money conditions and uncertainty around when regular activity may resume. The coronavirus fallout has already forced some companies to close their doors, while others struggle to drive demand amid widespread quarantine orders."We think even this Herculean stimulus effort is unlikely to overcome the effects of the COVID-19 shock and its interaction with existing vulnerabilities in the economy," the team wrote.
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