And Now, the Case for a 2020 Recession

IHS Markit sees one hitting in the second quarter and lasting to year-end.

Some seers are expecting a recession this year, the bitter offshoot of the coronavirus pandemic. But exactly how bad will it be? Try a peak-to-trough decline of 2.3% for the economy.

That’s the conclusion of IHS Markit, the London-based research firm, which just predicted that the downturn will begin in the second quarter and last through the end of the year, with recovery starting in early 2021.

In the year’s second period, the drop in gross domestic product (GDP) will total 5.4% annualized, the firm’s chief US economist, Joel Prakken, wrote in a report. Such a negative forecast “doesn’t feel like a stretch,” he argued. The catalyst, of course, is that “the spread of COVID-19 to the US is causing a sharp contraction in spending on activities that involve travel and congregating in public,” he noted.

Contributing factors, he maintained, also include “slowing global growth undercutting export demand, additional wealth effects from plunging equity prices, a drop in domestic production of crude oil and energy exploration.” 

In all, this means a -0.2% showing for the nation’s GDP for all of 2020, he calculated. By mid-year, he foresees the unemployment rate rising to 6%, up from 3.5% in February. Personal consumer expenditures, or PCE, an inflation measure, will fall below 2%, he continued. The Federal Reserve wants it to remain above 2%.

It’s for those very reasons that President Donald Trump is pushing for a $1 trillion economic stimulus package, and the Fed has pushed short-term interest rates back to near-zero while also resuming its bond-buying program. The oncoming slump, the president said, could be “a bad one.”

“Even as consumer spending begins to recover during the summer,” Prakken wrote, “the legacy effects of the second-quarter contraction of PCE, continuing declines in energy exploration and production, and weak overseas growth will result in negative growth of US GDP averaging about -1.9% (annualized) over the second half of the year.” Add in the second quarter, and you get a best-to-worst slide of 2.3%.

Meanwhile forecasts of a global recession are flying. Morgan Stanley and Goldman Sachs have floated predictions that one already is underway. They pointed to the worldwide spread of the virus and indications that its economic effect on China, where it originated, were more severe than many projected.

But the two Wall Street titans didn’t go so far as to predict a US recession, opting instead for an economic slowdown.

Morgan foresaw the nation’s economy growing 1.8% in this year’s first quarter, 0.3% in the second, 0.2% in the third, and 0.2% in the final period. It contended that Washington was formulating a “strong monetary and fiscal policy response” that “will help revive global growth” in the third quarter.” Goldman said GDP growth in this country would slow to 1.25% from a previous estimate of 1.9%. 

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