According to the Bureau of Economic Analysis, the US economy shrank by an annualized 5% in the first quarter of 2020, in line with the previous estimate and ending the most prolonged period of expansion in the country’s history.
It marked the largest drop in GDP since the last quarter of 2008 as the COVID-19 pandemic forced several states to impose lockdown measures in mid-March, throwing millions of people out of work.
With the third estimate, an upward revision to non-residential fixed investment was offset by downward revisions to private inventory investment, personal consumption expenditures (PCE), and exports.
The US economy is expected to bottom out in Q2, contracting by 16.3%, according to the NY Fed.
Growth will likely remain subdued for several quarters after that until the outbreak is controlled, the secondary impact is over, and the global economy begins to improve.
The International Monetary Fund (IMF) slashed its economic forecasts once again.
The IMF now estimates a contraction of 4.9% (previously 3.0%) in global growth in 2020, due to social distancing measures likely remaining in place during H2-20, with productivity and supply chains being hit.
The fund also downgraded its GDP forecast for 2021 to 5.4% (previously 5.8%). We are most concerned about debt sustainability for emerging markets.
As governments attempt to combat the fallout from the coronavirus crisis, fiscal balance sheets are seeing a meaningful deterioration in 2020 due to the weak growth outlook (2020F: -3.0%; 2021F: +5.9%) and larger fiscal deficits.
Unlike many advanced economies, EMs do not benefit from reserve currency status and ultra-low interest rates, and, thus, are using limited fiscal resources compared to DMs in the fight against COVID-19.