Global Recession

To various degrees, we are all in the battle. Leading the charge are doctors, nurses, and other healthcare workers who voluntarily go where they know they are in danger, often without protective gear, because lives are at stake. They truly are heroes.

At the other end are the people working remotely from comfortable homes. Life is different and inconvenient now. They’re nervous but relatively safe if they follow the standard precautions. Their income is secure for the moment. They still help the “war effort” just by staying home and not becoming disease carriers.

But most Americans are somewhere between those two extremes.

… alarming are the yellow bars at the right. If they are anywhere close to correct, it’s further evidence the unemployment rate is headed to Great Depression-like levels. And may stay there awhile, since we could be months (if not years) away from economic recovery.

Global Recessions:

Morgan Stanley is now predicting between a 38% and 45% drop in GDP for the second quarter, after a small drop in the first quarter. Even with the rebound in their moderate case, they still project a 4%-plus year-over-year recession in 2020. They acknowledge it could be much worse.

In our bear case outlook, the contraction in 2Q GDP is sharper, and disruptions from the virus persist into 3Q. In that scenario, we see 2Q GDP contracting as much as 45%, followed by a soft 3Q, and a rebound in activity in 4Q20 and into 2021. Even with the rebound, the level of output at the end of 2021 in our bear case remains 11.5% below its pre-recession peak. Real GDP contracts at an annual average rate of 10.7%Y in 2020 and expands at a modest 1.2%Y rate in 2021.

You can easily find much more optimistic or much more pessimistic projections. Morgan Stanley seems close to the middle. I post it simply to make the point this won’t be a quick return to business as usual.

How soon will people want to get back in the restaurants? How quickly will you want a dental hygienist putting her fingers into your mouth for a tooth cleaning? So much of life is going to change “Post-Virus.”

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