The U.S. economy could shrink 4% this quarter and 14% next quarter, and for the year is likely to shrink 1.5%, a JP Morgan economist said on Wednesday, in one of the most dire forecasts yet issued for the potential hit from the coronavirus epidemic.
U.S. chief economist Michael Feroli also forecast unemployment to rise to 6.25% by the middle of the year before easing to about 5.25% by year end as economic growth restarts.
The forecast assumes the Fed will continue to find “creative” ways to support the economy and that the Trump administration and Congress deliver fiscal support of $1 trillion.
Meanwhile, the Atlanta Fed raised its first quarter growth estimate.
The Atlanta Fed’s GDPNow model estimate for real GDP growth (seasonally adjusted annual rate) in the first quarter of 2020 is 3.1 percent on March 18, up from 2.9 percent on March 17.
“After this morning’s new residential construction report from the U.S. Census Bureau, the nowcast of first-quarter real gross private domestic investment growth increased from 6.3 percent to 7.5 percent,” the Atlanta Fed said.
As of last week, the New York Fed was much more pessimistic than Atlanta.
As of last Friday, the New York Fed Staff Nowcast was at 1.6% for 2020:Q1 and 1.1% for 2020:Q2.
Meanwhile, President Donald Trump now sees the risk of a U.S. recession due to the coronavirus, warning on Monday “this is a bad one.”
His frankness, which contradicted his previous optimism and the view of Treasury Secretary Steven Mnuchin one day earlier that the nation could skirt this fate, rattled investors, Bloomberg explained.
Forecasts for the U.S. vary wildly, with some guessing economic activity could decline by as much as an annualized 5% or even 10% in the second quarter. An even harder question is how long the slowdown will last: a short, sharp shock or something lingering or nasty.
“The middle two quarters of this year are going to be very challenging even if we get the spread of the coronavirus under control quickly,” said Carl Tannenbaum, chief economist at Northern Trust Corp. in Chicago and former Fed staffer.
This report uses material from Bloomberg.