The upcoming US recession projected by JPMorgan economists will be worse than the bank expected just one week ago.
The bank revised its first-half gross domestic product estimates lower in a Wednesday note, citing recent developments in the coronavirus outbreak and containment measures’ economic costs. JPMorgan dragged its first-quarter growth to -10% from -4% and dropped its second-quarter estimates to -25% from -14%.
A recession is commonly defined as two consecutive quarters of negative GDP growth.
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.
US GDP will bounce back by 6% in the second half of the year, the team led by Michael Feroli, the bank’s chief US economist, said, leaving the estimate unrevised from its previous level.
While the federal government’s $2 trillion fiscal relief bill “will help,” the loan-heavy package will add to the economy’s debt load and create new pressures as companies recover, JPMorgan said.
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.