As the coronavirus continues to take a toll on markets and business activity, top banks on Wall Street have further revised down their forecasts for second-quarter GDP and unemployment, predicting an even greater economic hit from the coronavirus than first expected.
JPMorgan was the latest big bank to cut its second-quarter GDP forecast even more, with its economists now foreseeing a 40% decline. The bank had earlier predicted a 25% hit to second-quarter GDP.
The firm’s economists issued the more dire forecast following Thursday’s latest jobless claims report, which showed another 6.6 million workers filed for unemployment. Over 16 million Americans have filed for unemployment benefits in the last three weeks, the latest indicator of how badly the coronavirus is impacting the economy.
Those numbers indicate a huge surge in job losses, which JPMorgan economists estimate could amount to 25 million in April, with the unemployment rate hitting 20%.
Top firms have largely struggled to gauge the impact of the coronavirus shutdowns on the economy, with many of the big banks now seeing a more than 30% hit to second-quarter GDP.
Morgan Stanley, for instance, lowered its forecast for the second quarter after severe job losses and more business closures in March: The bank now expects GDP to fall 38%, after originally forecasting a 30% contraction.
Among other recent forecasts: Investment giant PIMCO similarly predicts a 30% decline in second-quarter GDP and 5% decline for 2020 GDP, while the Congressional Budget Office on Thursday warned that the economy will contract 28% in the coming quarter, but also that “those declines could be much larger.”
Economic data over the past few weeks is starting to show the broad impact of the coronavirus pandemic. This past week not only saw surging jobless claims but also large declines in consumer sentiment and small business sentiment, as well as a drop in mortgage purchase application volumes. Although Wall Street had been expecting the economy to take a hit from the ongoing public health crisis, recent data from the past few weeks is indicating that the coronavirus will take a much worse toll than originally expected.
“The drop in economic activity reported to date has been severe, and we also see less chance of a meaningful pickup in activity in the coming months than we had previously believed,” JPMorgan’s economists said in their recent note. “As a result, we cut our growth forecasts yet again and now anticipate even higher unemployment rate readings than we had previously estimated.”