"Worst Q2 Beyond Financial Crisis Approaches...Global IB Growth Rate Downgraded"

US Q2 GDP, BoA Forecast -12%, JP Morgan -14%
Unemployment Rate Doubles
Eurozone -22%, UK -30% Forecast
Worse Than Worst Phase of Financial Crisis
Key Question: How Deep Will the Recession Be?

[Asia Economy Reporter Naju-seok] Global investment banks have predicted the worst economic growth rates for major countries including the United States in the second quarter of this year. Attention is focused on how deep and severe this recession will be.

On the 19th (local time), U.S. investment banks forecast that the U.S. Gross Domestic Product (GDP) will record double-digit negative growth (annualized) in the second quarter of this year. Bank of America (BoA) predicted that the U.S. economy will shrink by -12% in the second quarter. During the global financial crisis, the U.S. GDP recorded -7.2% in the fourth quarter of 2008, when the economic shock was the greatest, so this forecast is considered much more severe. However, considering a strong rebound expected in the third and fourth quarters, the overall growth for this year is projected to be -0.8%.

[Image source=Reuters Yonhap News]

BoA also predicted that 3.5 million jobs will disappear in the U.S. in the second quarter, doubling the current unemployment rate.

Michelle Meyer, BoA economist, said, "The U.S. economy has fallen into a recession," adding, "After hitting bottom in April as the downturn worsened, it will gradually recover."

JP Morgan presented a more pessimistic forecast. JP Morgan expects the U.S. economy to shrink by -14% in the second quarter. Such a growth rate forecast was unprecedented even during the height of the global financial crisis.

JP Morgan also expects the U.S. unemployment rate to surge from the current 3.5% to 6.25% in the second quarter.

The worsening economic situation has already begun to be confirmed through indicators. The U.S. Department of Labor reported 281,000 new unemployment claims on that day, an increase of 70,000 from the previous 211,000 claims. While the deteriorating employment figures are problematic, the regional distribution reveals the severity of the situation. The Rust Belt, where U.S. industrial zones are concentrated, has started to shake. For example, in Ohio, unemployment claims exploded. While claims increased by 5,400 in one week last week, this week 78,000 claims were filed in just three days.

The situation is even more severe outside the U.S. The Eurozone (countries using the euro) is forecasted to have a GDP growth rate of -22% in the second quarter. The UK is expected to have -30%. These forecasts already reflect the European Central Bank's (ECB) announcement of a 750 billion euro (1,010 trillion won) emergency asset purchase program and various government stimulus measures.

JP Morgan analyzed that China, which experienced the COVID-19 shock first, will have -40.8% growth in the first quarter of this year. As COVID-19 spread from China to the world, the rapid economic downturn is also spreading globally.

In Japan, pessimistic forecasts have emerged that if the Tokyo Olympics scheduled for July are canceled, the Japanese economy will experience four consecutive quarters of negative growth until the third quarter of this year.

According to Bloomberg News, Takahide Kiuchi, former policy board member of the Bank of Japan and chief economist at Nomura Research Institute, said, "It is almost certain that the Japanese economy will contract in the first and second quarters of this year," adding, "If the Olympics are canceled, there will be four consecutive quarters of negative growth through the third quarter."

While BoA and JP Morgan predict a recovery after the second quarter, they are not confident. The forecast results may vary depending on the spread of COVID-19. Bruce Kasman, head of research at JP Morgan, said, "From the third quarter, if economic activities normalize and government stimulus measures work, the economy can rebound strongly," but added, "If the COVID-19 outbreak does not subside and continues, a longer recession may persist."

This content was produced with the assistance of AI translation services.