Bank of America released its latest economic outlook, and it’s absolutely frightening.
The bank predicts that the US economy stands at the beginning of three straight quarterly declines. It expects Q1 to shrink by 7%, followed by a 30% decline in Q2 and a 1% drop in Q3.
The bank says Q4 will see the return of a growing economy. They, however, said that this will only come after overcoming unimaginable pain. “We forecast the cumulative decline in GDP to be 10.4% and this will be the deepest recession on record, nearly five times more severe than the post-war average,” the bank’s analysts wrote. The report goes on to say that although they expect consumer spending to perk up in Q3, the effects of the coronavirus outbreak will linger as consumers “face job cuts and a significant negative wealth shock.”
Unfortunately for many of us hoping for a quick recovery, Bank of America isn’t alone in their pessimism.
The Congressional Budget Office also lowered its expectations for economic growth through the end of the year. Revised figures now show second-quarter GDP declining 7% with a 10% unemployment rate compared to our current 3.5% unemployment rate.
“CBO expects that the economy will contract sharply during the second quarter of 2020 as a result of the continued disruption of commerce stemming from the spread of the novel coronavirus,” CBO Director Phil Swagel said in a post on the agency’s site.
Fitch Ratings also has a troubling economic outlook for the rest of the year. In its latest research report, the company states “A deep global recession in 2020 is now Fitch Ratings’ baseline forecast according to its latest update of its Global Economic Outlook (GEO) forecasts.”
In just 10 days since its last report, the company has revised its global GDP estimates for the year. It went from a modest 1.3% growth to a 1.9% decline. “The speed with which the coronavirus pandemic is evolving has necessitated another round of huge cuts to our [gross domestic product] forecasts,” the company added.
Here in the US, Fitch says the shutting down of the economy to slow the spread of the coronavirus will result in an “unprecedented peacetime” GDP decline of 7% to 8% in Q2. Alternatively, it may also result in a 28% to 30% decline on an annualized basis.
Negative Economic Outlook
Investors should also prepare for another drop in the market, says a hedge-fund manager. He correctly predicted the impact the coronavirus would have on the stock market and the economy in the US.
“If you go back and look at history, there are nine times that the market has sold off about 30% or so since the 1920s,” said Dan Niles, who runs the Satori Fund. “You get one of these every 10 years or so and if you look at every one of them, you always get these bear market rallies.”
Niles says that he sees another major drop headed our way. He says that valuations are still well above historical norms, even after the recent pullback.
“Just to get to average, you would have to have the market go down 30%,” he said. “It is very easy to figure out the market probably goes down 30% before we’re even near fair valuation.”
And he says don’t expect a quick recovery, either.
“I sort of laugh when I hear people talking about a V-shaped recovery because we are going to have at least 10% unemployment, my guess is closer to 20% before all of this is said and done.”