An already-dismal near-term U.S. economic outlook has darkened further in the latest Reuters poll of economists, and while a recovery is still forecast for the second half, the economy won’t come close to regaining the ground it lost this year.
Laying bare both the human and economic tragedy brought by the coronavirus pandemic, almost 4.4 million people have been infected globally and the U.S. unemployment rate surged to 14.7% last month, far higher than its post-World War Two record of 10.8% in November 1982.
U.S. gross domestic product was forecast to shrink an unprecedented 35.0% this quarter after contracting 4.8% last quarter, on a seasonally-adjusted annualized basis, according to the May 11-14 poll.
That is gloomier than a median 30.0% contraction predicted a month ago. In a worst-case scenario, the economy will contract 41.5% this quarter.
“The fate of the economy in Q2 and beyond is at the whim of the virus,” economists at JP Morgan noted.
“While the removal of restrictions is important to re-start activity, any economic recovery also will depend on how willing people are to participate in economic activity and also how these reopenings affect the virus spread.”
An increasing number of states are gradually relaxing lockdown restrictions, egged on by a White House keen to re-open the economy despite widespread concerns that in many cases it may be too early.
The economy is forecast to grow 16.0% in the third quarter and 9.0% in the fourth quarter, compared with 12.0% and 9.0% in the previous poll. Under a worst-case scenario, however, it will contract 2.5% and 1.0% respectively.
The median 2020 GDP forecast showed a further downgrade to -5.7% from -4.1% predicted a month ago but was a touch better than the International Monetary Fund’s -5.9% prediction.
In a worst-case scenario, the economy was forecast to shrink 10.4% this year, suggesting a prolonged recession if there is a second wave of infections as is already hitting a few countries.
“This cycle does not fit a mold. The downturn was painful and abrupt. There are now signs of life in the economy upon reopening. But the last stage of the cycle – the true recovery – will be challenging,” said Michelle Meyer, U.S. economist at Bank of America.
A staggering 20.5 million jobs were lost in April – the steepest plunge in payrolls since the Great Depression. The unemployment rate for this quarter was forecast at 16.8%, up 3.1 percentage points from the previous poll and nearly five times the reported 3.5% in February, the lowest in nearly 50 years.