INSUBCONTINENT EXCLUSIVE:
By Christopher Condon and Jeff KearnsGoldman Sachs Group Inc
and Morgan Stanley economists joined the rush on Wall Street to declare that the coronavirus has triggered a global recession, with the
debate now focusing on its likely length and depth.
A day after President Donald Trump conceded the U.S
slump alone is set to be “a bad one,” economists threw away their forecasts that the world could avoid tumbling into recession for the
first time since the financial crisis.
Behind the rethink: The virus’s spread to Europe and the U.S., as well as new evidence that China
-- the first to be hit by what is now a pandemic -- experienced a harder hit to its economy than originally projected.
Morgan Stanley’s
team, led by Chetan Ahya, said a worldwide recession is now its “base case,” with growth expected to fall to 0.9% this year
At Goldman Sachs, Jan Hatzius and colleagues predict a weakening of growth to 1.25%
S-P Global added its voice to the chorus with a report expecting that growth would range 1% to 1.5%.
BloombergSuch slumps would not be as
painful as the 0.8% contraction of 2009, as measured by the International Monetary Fund, but they would be worse than the downturns of 2001
Both Morgan Stanley and Goldman Sachs anticipate a rebound in the second half, but warn that the risk remains of even greater economic
pain.
The projections will apply further pressure on policy makers to do more to limit the health emergency and to deliver stimulus that
helps companies and consumers through the shock and then drives a rebound in demand afterward.
What’ Bloomberg’s Economists Say“We are
downgrading our forecast for China’s 2020 growth
Our previous forecast for the year was growth at 5.2%
That includes a 11% contraction in the first quater.” -- Chang Shu, David Qu and Tom OrlikAlthough the U.S
Federal Reserve and fellow central banks have been active in loosening monetary policy, most governments have been slow in responding and
are only now crafting fiscal packages that may still fail to pacify worried investors.
“While the policy response will provide downside
protection, the underlying damage from both Covid-19’s impact and tighter financial conditions will deliver a material shock to the global
economy,” Morgan Stanley’s economists said.
The outlook could darken even further if the virus lasts longer than anticipated, or wields
greater economic pain -- given factories, schools, restaurants and shops are closing around the world
A freezing up of markets or a continued sluggishness by governments to act are also regarded as threats.
Elsewhere on Wall Street,
strategists are laying out what governments should be doing.
At JPMorgan Chase - Co., John Normand advocated developed economies repeating
their handiwork of the crisis when they delivered fiscal stimulus worth 1% to 2% of gross domestic product
George Saravelos, a currency strategist at Deutsche Bank AG, said governments may also need to step in to guarantee support for households
and companies.
BloombergWhile the Fed gets “full marks” for its recent response in cutting rates and moving to stabilize credit markets,
Chief Economist Carl Tannenbaum said Congress and the White House have so far failed to act boldly enough.
“The other side of Washington
really needs to step up with something as substantial in size, and intelligent in design,” he said.
China is experiencing the biggest
pain, and most economists failed to capture how far it would fall, with the likelihood now that its economy will suffer the worst turmoil in
The Morgan Stanley economists now reckon its economy shrank 5% in the second quarter.
Since the outbreak originated in China, data is being
treated by many as a harbinger of what’s to come in other regions
Morgan Stanley predicts the U.S
and European economies will suffer the most in the second quarter.
Predictions for the U.S
still vary wildly, with some guessing activity could even decline as much 10% on an annualized basis in the three months through June
Goldman Sachs is penciling in a 5% dive after zero growth in the first quarter.
“The middle two quarters of this year are going to be very
challenging, even if we get the spread of the coronavirus under control quickly,” said Tannenbaum.
