JP Morgan Forecasts US Q2 Economic Growth Rate at -25%...Significant Downgrade Within a Week

[Image source=Reuters Yonhap News]

[Asia Economy Reporter Hyunwoo Lee] Global investment bank JP Morgan has warned that the U.S. economy could contract by 25% in the second quarter of this year due to the impact of the novel coronavirus disease (COVID-19). If the COVID-19 situation continues beyond the second quarter, the growth rate is expected to worsen further.

According to Bloomberg News on the 26th (local time), JP Morgan projected the U.S. economic growth rate for the second quarter, based on gross domestic product (GDP), at -25%. This is a significant downward revision from the -14% figure announced on the 18th. The U.S. first-quarter growth rate was also revised down from -4% to -10%. Mike Feroli, JP Morgan's chief economist, stated, "Last week's second-quarter growth forecast seemed overly pessimistic at the time, but now it appears somewhat optimistic," adding, "The current forecast assumes that COVID-19 will continue through the second quarter, so it could worsen further."

JP Morgan explained that the reason for the sharp downgrade in the growth forecast within just eight days is due to the expansion of stay-at-home orders, which have increased the scope of economic activity contraction, while government stimulus measures only partially offset some income losses. Jesse Edgerton, JP Morgan economist, said, "Federal government stimulus is expected to provide only partial offset to ongoing income losses," and added, "However, loans could exacerbate excessive debt in the corporate sector."

He further emphasized, "The growing discord between the federal government and various states' approaches to virus containment could undermine trust in institutions on which the market economy depends." Edgerton added, "Even massive stimulus efforts seem unlikely to overcome the interaction between the COVID-19 shock and the economy's existing vulnerabilities. In the coming months, companies will likely face constraints in tightened financing, making it difficult to achieve expected speeds in employment and capital expenditures, and damage to consumer sentiment, the labor market, and net assets is expected to be prolonged."

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