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JPMorgan sees US economy contracting next year as Covid-19 surge hits biz

The world's largest economy is expected to shrink at a 1% annualized pace in the January-to-March period, JPMorgan said in its 2021 U.S. outlook issued Friday

JPMorgan | US economy | US recession

Reade Pickert | Bloomberg 

JPMorgan Bank
White House economic adviser Larry Kudlow said Friday that he expects the V-shaped recovery to continue beyond January, saying in remarks to reporters that “the economy has tremendous momentum.”

Chase & Co. analysts are forecasting a U.S. economic contraction next quarter as various states impose restrictions on businesses and activity amid a record surge in Covid-19 cases.

The world’s largest is expected to shrink at a 1% annualised pace in the January-to-March period, said in its 2021 U.S. outlook issued Friday. That would follow estimated growth of 2.8% in the fourth quarter and the reported 33.1% expansion in the third quarter, which came after a record contraction in the prior period.

“While the powered through the July wave, at that time the reopening of the provided a powerful tailwind to growth,” economists Michael Feroli, Jesse Edgerton and Daniel Silver wrote in the note. “The economy no longer has that tailwind; instead it now faces the headwind of increasing restrictions on activity.”

The U.S. recovery -- from the recession that began in February -- has on the whole been stronger than expected, in large part due to a government stimulus package and Federal Reserve monetary policy actions. But hospitalisations and deaths from Covid-19 are rising, and more than 1 million new cases were recorded over the last week.

White House economic adviser Larry Kudlow said Friday that he expects the V-shaped recovery to continue beyond January, saying in remarks to reporters that “the economy has tremendous momentum.”

Meantime, lawmakers remain at a stalemate over the size of another fiscal relief package, though Treasury Secretary Steven Mnuchin is trying to revive stalled stimulus talks. Without an extension, millions of Americans are on track to lose their jobless benefits at year end.

JPMorgan isn’t alone in its forecast. Bloomberg Economics expects GDP to contract at a 0.5% annualised pace in the first quarter.

At the same time, positive news on Covid-19 vaccines is good news for the U.S. economy, increasing JPMorgan’s confidence that the economy will expand strongly in the second and third quarters of next year. The analysts also expect $1 trillion more in fiscal support by the end of the first quarter, further supporting the case for robust growth in the following two quarters.

Until then, Dallas Fed President Robert Kaplan suggested the economy could be at risk of slipping back into recession.

“We’ll have to see what the fourth quarter looks like,” he said. “It is possible we could have negative growth if this resurgences gets bad enough and mobility falls off enough.”

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First Published: Fri, November 20 2020. 23:01 IST