- Current impact on the US economy will set off the “deepest quarterly pullback,” Societe Generale said on Monday.
- SocGen expects declines of 10-40% in annualized gross domestic product in the second quarter.
- The shutdown will last through the end of April, SocGen said, adding that there will be a rebound but “the shape is unknown.”
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“Every day of downtime matters in the GDP,” Societe Generale said in a note Monday.
Market turmoil in response to the coronavirus shock is expected to trigger the “deepest quarterly pullback” in US post-war history, according to the firm.
If SocGen’s forecast is correct, US annualized gross domestic product will decline by 10-40% in the second quarter, but this is “highly dependent on the virus.” These estimates are also sensitive to assumptions relating to the “extent of pullback, duration and type of rebound.”
SocGen called the spike in recent jobless claims a “stark, visible economic reaction” in modern times.
American unemployment claims jumped to 6.64 million last week. April’s unemployment rate should be the biggest one-month spike in US post-war history, per Stephen Gallagher, US chief economist at SocGen.
Containment measures to slow the spread imply that stores and factories will cut volumes, impacting GDP.
In SocGen’s view, job cuts will help companies mitigate the impact, but many businesses may still choose to keep their staff despite not working. In previous recessions, layoffs were more focused on manufacturing and construction, but the current impact is on small businesses and restaurants.
The financial services firm opined that a shutdown affects all portions of the US economy but to different degrees. Job layoffs provide only one measure of the scale of damage but do not fully capture the downside swing, SocGen said, adding that the auto sector’s drag on the economy should be enormous.
In SocGen’s view, the shutdown will last through the end of April, but there will be a recovery.
Once stores reopen and the economy begins to rebound, “debt restructuring, deleveraging and restoring profitable growth are themes that should hang on the recovery for some time,” Societe Generale said.
Late last year, SocGen predicted that the US economy would be headed for a brief recession in the spring of 2020 and that it would last for roughly two quarters.
