Q2 growth could contract by 30%, says White House’s top economist

Ahead of the announcement of the GDP in the first quarter of the year, pundits in Washington are warning that the U.S. economy will post the worst records since the 2008 global financial crisis. During an interview with ABC on Sunday, White House Council of Economic Advisers Chairman Kevin Hassett said the unemployment rate could “approach the rates that we saw during the Great Depression.”

The Wall Street Journal said Wall Street experts put the growth rates at the first and second quarters of the year at -3.5% and -25%, respectively. The last time the U.S. economy suffered contraction was the first quarter of 2014 (-1.1%). Retail sale, which is accountable for about 25% of household spending in the U.S., dipped 8.7% in March as against the previous month. Following industrial production in March that fell 5.4%, it is certain that the economy would register a negative growth.

In the second quarter of the year, the GDP is expected to fall further as it will bear the brunt of the aftermath of travel bans imposed from mid-March. The White House’s top economist said the growth in the second quarter could contradict as much as 30%. The unemployment rate in April, which will be announced in early next month, is also expected to reach around 15%, a significant increase from 4.4% in March.

Companies announcing their first-quarter performance starting on Tuesday are also likely to have been affected by the corona shock. On Tuesday, Alphabet, the parent company of Google, HSBC, Microsoft Corporation, and Airbus will reveal their financial results for the first quarter of the year. Apple, Amazon, and McDonald will announce their Q1 results on Thursday, followed by ExxonMobil and Chevron on Friday. Energy companies are drawing a keen attention as they have been hit the hardest by plummeting airline shares and oil prices.

Forecast for the latter half of the year cuts both ways. Some predict a “V-shaped bounce back,” and others fear the doldrums will remain throughout the rest of the year. In an interview with Fox News, Treasury Secretary Steven Mnuchin predicted that the economy will rally up again in Q3 once normalization begins next month, mentioning the massive stimulus package worth 220 million dollars from last month. In a survey by The Wall Street Journal, 85% of respondents said the COVID-19 crisis will blow over and the economy will start to recover in the latter half of the year. “Our experts think it’s late next year when the economy gets back to the same size it was prior to this (the COVID-19 outbreak),” Brian Moynihan, the CEO of the Bank of America, said in an interview with CBS News.


parky@donga.com · jyr0101@donga.com