Analysts now project U.S. growth could shrink at rates far worse than the 2008 global recession, ending weeks of cautious optimism about the economy’s ability to withstand the fallout from the coronavirus.
Analysts at Goldman Sachs Group Inc. on Friday said they expect U.S. growth to contract 24% in the second quarter, a rate nearly five times as large as the bank’s previous forecast of a 5% decline. Goldman said a decrease of that magnitude would far outpace the largest quarterly drop in gross domestic product on record—during the first quarter of the 1958 recession, when the U.S. economy contracted 10%.
“The sudden stop in U.S. economic activity in response to the virus is unprecedented, and the early data points over the last week strengthen our confidence that a dramatic slowdown is indeed already underway,” the bank said in its report.
The fallout from the coronavirus pandemic has swelled in recent days, as cities and states across the nation have increasingly mandated that residents stay home. Millions of American employees are now required to work from home. Retailers, bars and restaurants across the country have temporarily closed. And several airlines have cut flights and grounded portions of their fleets.
Jittery investors have pulled the Dow Jones Industrial Average and S&P 500 down about 30% from their mid-February highs in a period of market volatility not seen since the financial crisis.
Coronavirus cases in the U.S. have surged beyond 14,000, and globally, more than 10,000 people have died. Many carriers of the virus remain asymptomatic, meaning the full extent of infections—and related economic fallout—remains to be seen.
Initial jobless claims for the week ending Saturday could rise to 2.25 million, Goldman estimated. And the Federal Reserve Bank of Philadelphia’s manufacturing outlook survey this week revealed a significant weakening in regional manufacturing activity.
Economists expect the manufacturing outlook to get worse nationwide as many of the country’s automobile plants close temporarily. Other sectors of the economy, including retail and service, will also be closely monitored to gauge how sharply growth may contract.
The estimate from Goldman followed other GDP forecast revisions from big banks this week.
In a note Wednesday, JPMorgan Chase & Co. analysts said they expect U.S. GDP to shrink 14% next quarter, a steeper decline than the 8.4% drop experienced in the fourth quarter of 2008. Still, the bank doesn’t expect U.S. growth to be as severely curtailed as China’s. For the first quarter, JPMorgan economists expect Chinese GDP to plunge more than 40% from the previous quarter.
“There is no longer doubt that the longest global expansion on record will end this quarter,” the bank said. “The key outlook issue now is gauging the depth and duration of the 2020 recession.”
Yet while analysts have grown increasingly pessimistic about what next quarter could bring, most retain positive expectations for the second half of the year. Goldman Sachs said it expects GDP to have a 12% quarter-on-quarter growth rate between July and September, followed by a 10% increase in the fourth quarter.
Similarly, analysts at Bank of America Corp. said in a note Thursday that recovery could begin in the second half of the year but added that the “speed and magnitude” will depend on the policy response.
The Federal Reserve has taken a number of steps this week to dull stress in the markets, including introducing a massive bond-buying program and implementing emergency rate cuts—two of many steps that have yet to assuage investors. Some economists are hopeful that a potential $1 trillion stimulus package from U.S. lawmakers could help curb anxiety.
Bank of America said it believes that the U.S. economy has already fallen into a recession, and it expects U.S. GDP to drop 12% in the second quarter.
But the stimulus package could “help partially offset the short-term drag and more importantly keep the economy out of a long-term recession,” the bank said. “Jobs will be lost, wealth will be destroyed and confidence depressed.”
Write to Caitlin McCabe at caitlin.mccabe@wsj.com
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