JPMorgan slashes its GDP forecast for next quarter, now sees a 25% contraction and an imminent recession despite ‘Herculean’ stimulus measures

A man with a face mask crosses a street in Brooklyn, New York, on Wednesday.

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A man with a face mask crosses a street in Brooklyn, New York, on Wednesday.
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Tayfun Coskun/Anadolu Agency/Getty Images
  • JPMorgan lowered its first-half US GDP forecast on Wednesday, a week after projecting a deep recession.
  • Its forecast for first-quarter growth slipped to -10% from -4%, the team led by the chief economist Michael Feroli wrote. The estimate for second-quarter expansion plunged to -25% from -14%.
  • The bank kept its second-half estimate at 6%, noting that 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.
  • Visit Business Insider’s homepage for more stories.

The US recession that JPMorgan economists forecast a week ago will be worse than expected, the bank said in a Wednesday note.

The bank revised its first-half gross-domestic-product estimates lower, citing recent developments in the coronavirus outbreak and containment measures’ economic costs. JPMorgan dragged its first-quarter growth estimate to -10% from -4% and dropped its second-quarter estimate 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 to 3.3 million in the week ended March 21, far exceeding the record of 700,000 set in 1982.

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 after a weather disaster, the bank said.

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US GDP will bounce back to 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 would help, the loan-heavy package would 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 the president to inject massive stimulus throughout the economy. The legislation calls for directly paying Americans, bolstering unemployment benefits, and giving hundreds of billions of dollars in loans to floundering businesses.

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Even with fresh aid flooding the US economy, firms would still grapple with tight money conditions and uncertainty about when regular activity may resume, JPMorgan said. The coronavirus fallout has already forced some companies to close their doors, while others have struggled 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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