Goldman Sachs Group and Morgan Stanley economists joined the rush on Wall Street to declare the coronavirus has triggered a global recession, with the debate now focusing on how deep it will be and long it will last.
A day after President Donald Trump conceded the U.S. slump alone is set to be “a bad one,” economists threw away their forecasts that the world could avoid tumbling into recession for the first time since the financial crisis. Behind the rethink: The virus’s spread to Europe and the U.S. and new evidence that China—the first to be hit by what is now a pandemic—experienced a faster collapse in its economy than originally thought.
Morgan Stanley’s team led by Chetan Ahya said a worldwide recession is now its “base case,” with growth expected to fall to 0.9% this year. At Goldman Sachs, Jan Hatzius and colleagues predict a weakening of growth to 1.25%.
Such slumps would not be as painful as the 0.8% contraction of 2009, as measured by the International Monetary Fund, but they would be worse than those of 2001 and the early 1990s. Both Morgan Stanley and Goldman Sachs said while they anticipate a rebound in the second half, the risks remain of even deeper downturns.
The projections will apply further pressure on policy makers to do more to limit the health emergency and then provide enough stimulus to drive a rebound in demand once the virus is under control. Although the U.S. Federal Reserve and fellow central banks have been active in loosening monetary policy, most governments have been slow in responding and are only now crafting fiscal packages that may still fall short of pacifying worried investors.
“While the policy response will provide downside protection, the underlying damage from both COVID-19’s impact and tighter financial conditions will deliver a material shock to the global economy,” Morgan Stanley’s economists said.
The outlook could darken even further if the virus lasts longer than anticipated or wields greater economic pain—given factories, schools, restaurants and shops are closing around the world. A freezing up of markets or a continued sluggishness by governments to act are also regarded as threats.
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