Morgan Stanley, Goldman See Virus Causing Greater Economic Pain
Morgan Stanley and Goldman Sachs Group Inc. economists said the coronavirus will inflict greater economic pain than they previously expected as they warned of a record plunge in the U.S. output in the second quarter and a deeper global recession.
Morgan Stanley’s U.S. economists led by Ellen Zentner told clients in a report on Sunday that they now see American gross domestic product falling at an annual rate of 30.1% in April-June. That will drive up unemployment to average 12.8% over the period, they said.
At Goldman Sachs, Jan Hatzius’s team said in a report that they now expect the world economy to contract about 1% this year, which would be a bigger decline than even that witnessed in 2009 amid the financial crisis. They were already projecting a 24% annualized drop in U.S. output in the next quarter.
The dire forecasts from two of Wall Street’s biggest banks reflects the sudden stop that the U.S. and European economies are witnessing following China’s slump at the start of the year.
Such predictions are raising fears of a depression, but Morgan Stanley economists said in a separate report that a sustained contraction should be avoided given the response of fiscal and monetary policy makers. Both Morgan Stanley and Goldman Sachs anticipate a recovery beginning in the third quarter, although that is subject to risks.
For China, most see the worst hit in the first quarter. JPMorgan Chase have flagged a 40% plunge in Chinese gross domestic product in the first quarter from the previous three months, the biggest contractions in at least 50 years.
Chinese officials, including Premier Li Keqiang, have pointed to claims the outbreak has been controlled and signs of a resumption of activity as reasons for optimism with regards to China’s outlook.
March 18, 2020