- JP Morgan lowered its US GDP forecast for the first half on Wednesday after forecasting a deep recession just a week earlier.
- Growth in the first quarter will decrease from its previous estimate of -4% to -10%, wrote the team led by chief economist Michael Feroli. The expansion in the second quarter will decrease from -14% to -25%.
- The bank kept its second-half estimate at 6% and found that strong financial headwinds and tense capital conditions offset hopes of a stronger recovery.
- While the Senate's "Hercules Incentive Effort" will provide short-term help to struggling companies, the package is unlikely to "overcome the effects of the COVID-19 shock," the economists wrote.
- You can find more stories on the Business Insider homepage.
The upcoming US recession is projected by JP Morgan Economists will be worse than the bank expected a week ago.
The bank revised its gross domestic product estimates for the first half of the year in a Wednesday note, citing recent developments in the economic cost of the coronavirus outbreak and containment measures. JPMorgan grew its growth from -4% to -10% in the first quarter and lowered its estimates for the second quarter from -14% to -25%.
A recession is usually defined as two consecutive quarters of negative GDP growth.
The pandemic will also push unemployment up to 8.5%, the bank said, and repeated the record unemployment data released Thursday morning. Weekly unemployment benefits rose by 3.3 million in the week of March 21, far exceeding the previous record of 700,000 in 1982.
Despite the increasing pessimism, economists do not see that the lower economic low gives way to a similarly rapid recovery. Weaker corporate balance sheets and strong financial headwinds suggest that the economic recovery will be more like the post-2008 financial crisis era than a weather catastrophe recovery, the bank wrote.
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US GDP will recover 6% in the second half of the year, said the team led by Michael Feroli, the bank's chief economist in the United States, leaving the estimate unaffected by its previous level.
While the federal government's $ 2 trillion law will "help," the credit-intensive package will add to the debt burden on the economy and create new pressure as companies recover, JPMorgan said.
The Senate passed the Coronavirus Aid, Relief and Economic Security Act [CARES Act] late Wednesday, sent the bill to the House of Representatives and positioned President Trump to give the economy a massive boost. Legislation calls for direct payments to individual Americans, increased unemployment benefits and loans of hundreds of billions of dollars to struggling companies.
Even if the US economy is flooded with new aid, JPMorgan believes that companies will continue to struggle with tight monetary conditions and uncertainties about when regular activities could resume. The fallout of the coronavirus has already forced some companies to close their doors, while others are having difficulty increasing demand in the face of widespread quarantine orders.
"We believe that even this Herculean effort is unlikely to overcome the impact of the COVID-19 shock and its interaction with existing economic weaknesses," the team wrote.
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