PNC Forecasts Economic Rebound in Second Half of 2020
PITTSBURGH – Economists at PNC are forecasting the recession brought about by the coronavirus to be worse than the Great Recession, with an economic recovery beginning in the second half of this year.
The United States’ inflation-adjusted GDP dropped 4.8%, the worst annual rate in more than a decade, even though virus-related restrictions were only in place the final two weeks of the quarter in much of the country.
“Data on consumer spending, the labor market, business investment, industrial output, housing and trade all deteriorated dramatically in March, and will be much worse for April,” writes PNC chief economist Gus Foucher. “Forward-looking surveys on consumer, business, and homebuilder confidence point to steep near-term contractions in consumer spending (68% of U.S. GDP), business investment (13%) and residential construction (4%). Business investment will be particularly hard-hit by the recent plunge in energy prices. Inventories will be another drag on near-term growth as businesses try to reduce stockpiles in the face of plunging demand.”
Trade was a positive in the first quarter, adding 1.3 percentage points to annualized growth, though Foucher notes that number is “deceptive” as exports fell 9% and imports dropped 15%. PNC expects U.S. exports to fall about 15% in the first half of the year.
Overall, PNC forecasts the American economy to contract almost 10% in the first half of the year, more than double the Great Recession’s overall contraction of 4%.
“A U.S. economic recovery should begin in the second half of 2020, assuming restrictions on movement are gradually lifted over the next few months,” Foucher writes. “Efforts to aid small businesses, especially the Paycheck Protection Program, which provides loans to small businesses that will turn into grants if they keep most of their workers, will allow firms to quickly restart as their customers return. Income support programs, including the tax rebates sent to most households and extended and expanded unemployment insurance benefits, will help offset lost labor market income, allowing consumers to resume spending once they are able to.”
PNC expects growth of more than 10% annualized in the second half of the year, followed by 6% growth in 2021. The bank also forecasts unemployment to drop below 10% by the end of the year and 6% by the end of 2021.
“The biggest risk is a potential second coronavirus outbreak later this year or in 2021, which could lead to renewed restrictions on movement and a second recession,” Foucher writes.
The full report from PNC can be read here.
Published by The Business Journal, Youngstown, Ohio.