US economy to contract more than 4.0% in 2020 – UOB

FXStreet reports that strategists at UOB Group's Quarterly Global Outlook estimate the US GDP could contract 4.1% during the current year.

"Indeed, the price to pay to contain COVID-19 is a heavy economic cost. Strong, draconian measures that are absolutely necessary to break the transmission chains are also clearly disastrous for businesses and consumers (the pillar of US economy). We factor in two consecutive quarters of GDP contraction in 1H, of which we now project a 2% (annualised rate) decline in 1Q followed by a deeper 26.8% contraction in 2Q."

"This now implies that we see US falling into a severe technical recession (i.e. 2 consecutive quarters of sequential q/q declines) in 1H 2020. The subsequent 2H will resume q/q growth (we assume the COVID-19 situation will improve/be partly under control by mid-2020) but the rebound (+6.1% in 3Q and 10.4% in 4Q) in the latter half of the year will not offset the 1H contraction, so US overall GDP will now contract by 4.1% in 2020 (from previous forecast of +0.6%), and will be the first full year contraction since 2008 and 2009. The significant impact on economic and day-to-day activities could see a sharp spike in US job losses (4-5 million) and unemployment could surge above 10% in 2Q before easing to end the year at 8.5%. Inflation is likely to be subdued, averaging below 1% in 2020."