Economies contract in pandemic’s wake
Shutdowns hit U.S. economy hard
After declining 5% in the first quarter, we expect the second-quarter contraction in U.S. economic growth to be significantly worse, reflecting the deep effects of pandemic-driven shutdowns and stay-at-home orders. Elevated corporate debt levels, supply chain disruptions, high unemployment, weak demand and recent social unrest likely will prolong the recession. We believe the economy will begin to improve in the second half of the year, but the recovery process will be slow and extended.
Europe faces deep recession
We believe the eurozone’s economic contraction likely bottomed in May, but like the U.S., we expect the recession to be deep and lengthy. In response, the European Union announced a massive recovery plan consisting of loans and grants for pandemic-related relief. The U.K. economy fared relatively better in the first quarter, but policymakers are bracing for a record-breaking downturn in the second quarter.
China’s economy sinks for first time on record
Gross domestic product (GDP) in China declined nearly 7% in the first quarter, the first contraction since authorities began recording data in 1992. While the politburo insists economic fundamentals remain unchanged, mounting job losses, weak global demand and heightened trade tensions with the U.S. are creating strong economic headwinds. Additionally, rising COVID-19 infection rates in certain emerging markets (EM) countries will create challenges to growth.