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Morgan Stanley: US GDP to fall 30%

By Lawrence Gash

Leading American banks revise economic forecasts down as Covid-19 spread intensifies

Two of America’s leading financial institutions have dramatically revised down their economic forecasts in light of the accelerated spread of Covid-19 throughout the country.

On Friday, Goldman Sachs outlined its belief that the US economy would contract by 24 per cent in the second quarter of 2020, instead of the 5 per cent it had previously forecast.

Now in a report to clients on Sunday, Morgan Stanley’s Ellen Zentner told clients that the bank now anticipates a 30.1 per cent fall in US GDP.

Both banks have predicted marked surges in unemployment. Goldman estimated that up to 2.25 million Americans could have registered for unemployment benefits for the first time last week.

Morgan Stanley stated that unemployment could average 12.8 per cent between April and June.

While the US still lags behind Europe in terms of active cases, the pandemic has haemorrhaged America for the past month. The Federal Reserve’s zero interest rate policy and injection of trillions of dollars into faltering parts of the US financial system has been unable to counteract widespread business closures.

Cases of Covid-19 in the United States surged over the weekend, totalling 35,476 by Monday afternoon, with 465 deaths. Much of the country has been put in effective lockdown, with the National Guard deployed in New York, California and Washington.

Morgan Stanley’s report stated: “Economic activity has come to a near standstill in March. As social distancing measures increase in a greater number of areas and as financial conditions tighten further, the negative effects on near-term GDP growth become that much greater.”

Until recently, Wall Street had leant towards the general opinion that the US economy, along with other leading nations, would experience a V-shaped phenomenon, with a halt in Q1, a plunge in Q2 and a rebound in the second half of 2020, avoiding a recession.

With the situation fast-evolving, faith in this opinion is waning. Only today Angel Gurría, the secretary general of the OECD, dismissed it as “wishful thinking” and said the economic shock of Covid-19 was already bigger than the 2008 financial crisis.

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