Economists at Morgan Stanley and Goldman Sachs Group are warning that the coronavirus will be more economically devastating than originally forecasted, according to a Sunday (March 22) Bloomberg report.
Ellen Zentner, an economist at Morgan Stanley, told clients in a report to expect the U.S. gross domestic product (GDP) to plummet over 30 percent between April and June, which will trigger an increase in unemployment to an estimated 12.8 percent.
Jan Hatzius’s team at Goldman Sachs said in a report that they now expect the world economy to “contract about 1 percent this year,” which is a bigger drop than during the financial crisis of 2009.
In another report, Morgan Stanley economists warned that “sustained contraction should be avoided given the response of fiscal and monetary policymakers.”
Recovery is expected in the third quarter, according to Morgan Stanley and Goldman Sachs.
“Economic activity has come to a near standstill in March,” the Morgan Stanley economists said. “As social distancing measures increase in a greater number of areas and as financial conditions tighten further, the negative effects on near-term GDP growth become that much greater.”
James Bullard, president of the Federal Reserve Bank of St. Louis, told Bloomberg that unemployment could reach 30 percent in the second quarter due to coronavirus-related closures of retail stores and businesses. He said the GDP could plummet 50 percent.
Bank of America is forecasting a decline close to 25 percent in the second quarter, and JPMorgan Chase & Co. expects a 14 percent drop.
Economists have said a worldwide recession is already here.
JPMorgan Chase said Chinese gross domestic product dropped 40 percent in the first quarter, the most in a half-century.
An estimated 5 million jobs will be lost due to the coronavirus and the economic shortfall could reach $1.5 trillion across the U.S. The debilitating effects could rival and maybe even surpass the effects of the 2007-09 housing crisis that caused a recession a little over a decade ago, the experts predicted.