- A new economic growth estimate from JPMorgan projects recession hitting the US and European economies by July.
- The bank’s views of the virus “have evolved dramatically in recent weeks.” JPMorgan economists now expect US GDP to shrink by 2% in the first quarter and 3% in the second.
- Eurozone GDP will contract by 1.3% and 3.3% over the same periods, the economists added.
- The “sudden stop” to economic activity through quarantines, event cancellations, and social distancing contributed to the downward revision alongside recent weeks of financial market chaos.
- “As we resign ourselves to the inevitability of a large and broad-based shock,” nations’ economic policy responses are key to preventing an even longer-lasting downturn, the economists added.
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The US’s biggest bank expects the coronavirus pandemic to sink the US and European economies into a deep recession as soon as this summer.
JPMorgan’s views of the virus “have evolved dramatically in recent weeks” as the outbreak spreads further around the world and fuels the worst stock market sell-offs in decades, the bank’s economists wrote in a Thursday note. The US economy will shrink by 2% in the first quarter and 3% in the second, JPMorgan projected, while the eurozone economy will contract by 1.8% and 3.3% in the same periods.
A technical recession is defined as two consecutive quarters of negative gross domestic product growth. The bank’s emerging markets economists haven’t yet updated their growth estimates, but “evolving news on the virus and the material tightening” in emerging markets’ financial conditions make it “reasonable to expect further downward revisions” in global first-half GDP, the economists wrote.
The virus was initially deemed a short-lived but disruptive shock to world economies, but two key developments lead the bank to brace for a "much sharper" contraction in the first half of the year and novel-global recession.
The economists first cited the "sudden stop" to economic activity created by coronavirus quarantines and social distancing measures around the world. Italy is in total lockdown as virus cases surpass 15,000, and numerous countries including the US are banning some travel to curb further contagion. The cancellation of major sporting, cultural, and business events will further cut into consumer spending. The uncertainty surrounding the virus will make a coordinated economic restart even more difficult, the economists said.
Financial markets' wild price swings and tumbling asset prices will also contribute to economic contraction over the next two quarters, according to JPMorgan. Financial conditions around the globe are "tightening sharply as perceptions of credit quality" across several assets deteriorate, the economists said. The risk of sovereign and corporate debt crises adds to the firm's already-dire economic outlook.
The key to avoiding an even worse hit to global growth lies in countries' policy responses, the bank's economists wrote. Authorities need to target ailing sectors with stimulus, limit financial market stress, and prop up consumer demand through monetary policy. Any shortfall risks recession lasting throughout 2020, the firm added.
"As we resign ourselves to the inevitability of a large and broad-based shock to global growth, the key issue is whether we can avoid a traditional and longer lasting recession event," JPMorgan wrote.
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