Worst Economic Contraction Since Great Depression Headed Our Way

With the coronavirus outbreak continuing to worsen here in the US, Wall Street is growing increasingly pessimistic when it comes to our economy in the second quarter of the year.

Analysts have been systematically lowering their estimates for Q2 GDP as the coronavirus continues to spread and has caused numerous industries to either shut down completely or dramatically scale back operations.

On Wednesday, all three major US auto manufactures (Ford, General Motors and Fiat Chrysler) said they will close all of their plants by the end of the month, with Ford closing all of its plants in the US, Canada and Mexico last night.

Seeing these massive shutdowns cascading through our economy has Wall Street forecasters predicting that Q2 will be the single worst economic contraction since the end of World War II. 

The worst annual contraction was 13% in 1932 when the economy cratered during the Great Recession and at least one politician thinks that’s where we are headed.

“The United States is facing what could become the most serious economic crisis since the Great Depression of the 1930s,” says Rep. Don Beyer (D) from Virginia, who is vice chairman of the Joint Economic Committee in Congress.

The worst quarterly contraction on record was in Q1 1958 when the economy shrank 10% during what is now called the “Eisenhower Recession.”

Today’s forecasts are for a historically bad Q2 GDP, worse than anything anyone has seen before.

The most pessimistic forecast is from JP Morgan, who predicts the economy will contract an eye-watering 14%. Following behind them is Deutsche Bank, who believe the economy will slide 13%.

The other banks predicting a double-digit decline are Oxford Economics which sees a 12% contraction and Capital Economics predicts a 10% drop.

There’s also no clear predictions on when the economy could boom again, as most agree that it is entirely dependent on how soon the coronavirus can be brought under control.

President Trump believes that once the spreading of the virus is under control, the economy will come back stronger than before.

During a speech yesterday he said “We’ll be back and I actually think we’ll be back stronger than ever before because we learned a lot during this period of time.”

Treasury Secretary Steve Mnuchin says the economy will “roar back” in Q4 once the worst of the outbreak has passed and we return to a “normal world.”

Some of the same banks that are incredibly pessimistic on Q2 GDP are optimistic for the second half of the year.

Deutsche Bank predicts the US will grow 5% in the second half of the year, as the country goes through a “sharp V-shaped dip in economic growth.

Jan Hatzius, Goldman Sach’s chief economist says he expects GDP growth of 3% in the third quarter and a 4% expansion in the final three months of the year. 

Of course, all of these predictions or estimates assume that the outbreak will be contained sometime in Q2. If that doesn’t happen, all bets are off for GDP growth for the second half of the year.