US Economic Outlook – further evidence of an unprecedented collapse in economic activity

The longest US expansion on record is now officially over. The COVID-19 recession is expected to be deeper and steeper than the Global Financial Crisis, but more shortlived. Point estimates at this time remain highly uncertain. Still, given the unprecedented lockdown-induced collapse in 2Q and the outlines of only a slow, phased re-start, we have revised down our projection for 2020 real GDP. We now foresee a contraction of 6.4%, before a partial 4.2% rebound next year – a recovery in the shape of an "inverted J". The fiscal and monetary support measures described last month are massive. However, they take time to work through to the economy and cannot offset all of the 2Q contraction, even if we expect them to inhibit some of the usual second-round effects on income losses and insolvencies. We still foresee permanent scarring from the pandemic, with the 4Q19 level of real GDP not reached again until mid-2023. Risks to our forecast remain to the downside, from "too early" reopening that can lead to virus resurgence and renewed activity restrictions; a second wave in the fall; or larger than expected second-round impacts of defaults, business closures and unemployment hysteresis.

Key takeaways

  • With additional real-time data in hand, we now estimate a larger peak hit to economic activity in 2Q, and still only a gradual re-opening.
  • Full-year 2020 real GDP is projected to plummet by 6.4%, followed by only a partial 4.2% recovery in 2021.
  • Uncertainty around the point forecasts and the longer-term implications remains vast.
  • Risks remain to the downside from "too early" reopening, a second virus wave in the fall, or larger than expected second-round impacts.
  • With only two weeks of shutdown in the quarter, the advance real GDP estimate still showed a 4.8% annualized contraction in 1Q20.
  • The unprecedented coronavirus impact on the economy is clearly illustrated by April labor market statistics.
  • We expect the COVID-19 crisis demand shock to outweigh the supply shock for near-term inflation indicators.
  • The US-China (trade) dispute flared up again and is likely to simmer through election season.
  • More long-term, COVID-19 is likely to bring forward some previously-identified megatrends.


Economic Outlook Further evidence of an unprecedented collapse in economic activity