Economists are lowering their estimates for second-quarter growth in the U.S. as the coronavirus crimps demand and spending, in some cases penciling in what would be the first contraction since 2014. Analysts who follow the U.S. economy from at least six financial firms — Wells Fargo & Co., BMO Financial Group, Canadian Imperial Bank of Commerce, ABN Amro, Rabobank, and Berenberg — now see contractions for the April-June period, ranging from an annualized rate of 0.1% to 2%, according to research reports and early survey responses compiled by Bloomberg News.
“Given the extreme market volatility and growing number of cases of the virus in the U.S., we’re seeing states declaring states of emergency,” said Jennifer Lee, an economist at BMO, which slashed its forecast for second-quarter gross domestic product to a 2% contraction. “It’s becoming a demand issue — all these fearful consumers, people canceling cruises,” Lee said. “It’s going to feed back to the business side as well, with business investment holding back.”
Consumption is likely to slow — particularly for discretionary spending such as at restaurants and clothing stores — as plunging stocks likely damp consumer sentiment, Berenberg economist Mickey Levy said in a note to clients Tuesday. Corporate investment will also slow further as supply chains are cut and uncertainty remains, he said.
The pessimists remain in a minority, with most analysts continuing to forecast growth in the second quarter, albeit at a relatively weak pace.
Also, Levy and other analysts who’ve lowered forecasts note that the outlook is a moving target: The coronavirus impacts have yet to filter through into the official government data and there are many unknowns, including the timing of factory re-openings, how far the virus will spread and the fiscal policy response.
Growth will likely bounce back in the third quarter, the forecasts show, as fiscal stimulus works its way through the economy and factories reopen to stabilize supply chains.