JPMorgan: Spiking COVID-19 Signals Likely Q1 GDP Slump

economy, coronavirus

A growing wave of coronavirus cases and related restrictions could trigger a decline in first-quarter gross domestic product (GDP), J.P. Morgan economists said in a new forecast, CNBC reported Friday (Nov. 20).

“This winter will be grim, and we believe the economy will contract again in 1Q,” the economists wrote. “We think the trends in the labor market should roughly follow what we expect for consumer spending — job growth should weaken noticeably around the turn of the year as the virus weighs on the economy, and then pick up again early next year once vaccine distribution eases virus concerns and fiscal support boosts growth.” 

The projection goes against earlier Wall Street forecasts that largely believed the first quarter of 2021 would be the start of a bouncing-back economy. Economists from J.P. Morgan said they are looking to the second and third quarters for an economic rebound — providing the COVID-19 vaccine is successful.

The first quarter is expected to contract by 1 percent after growth of 2.8 percent in the fourth quarter. Second-quarter growth is forecast at 4.5 percent, followed by 6.5 percent in the third quarter. The economists are also counting on roughly $1 trillion in stimulus funding.

“One thing that is unlikely to change between 2020 and 2021 is that the virus will continue to dominate the economic outlook. … Case counts in the latest wave are easily surpassing the March and July waves,” the economists said, per CNBC.

They noted that the economy was helped through the July outbreak by the economic reopenings. “The economy no longer has that tailwind; instead it now faces the headwind of increasing restrictions on activity. The holiday season — from Thanksgiving through New Year’s — threatens a further increase in cases,” they added.

A report from the Bureau of Economic Analysis indicated that the economy shrank by about 33 percent during the second quarter, the largest GDP decline since 1947, the first year data was tracked. By comparison, at the peak of the Great Recession in 2008 GDP only lost 8.4 percent.

Disposable personal income dropped $636.7 billion, or 13.2 percent, in the third quarter. By comparison, the second quarter saw an increase of $1.6 trillion, or 44.3 percent.

Recent PYMNTS data shows the change in buying habits amid the pandemic, with more people going for goods over experiences like vacations and shows. The survey showed that 59 percent are eager to return to things like dining out but will wait until there is a vaccine.