Traders work on the floor of the NYSE on March 20, 2020 in New York City. Image: Spencer Platt/Getty Images North America

Morgan Stanley economists said the coronavirus will inflict a deeper recession on the US than previously expected, including a record 30.1% drop in gross domestic product in the second quarter.

Less than a week since forecasting a 4% contraction in April through June, the economists led by Ellen Zentner said they now anticipated a steeper drop, unemployment will average 12.8%, and consumption will fall 31% in the quarter.

“Economic activity has come to a near standstill in March,” the economists said in a report to clients on Sunday. “As social distancing measures increase in a greater number of areas and as financial conditions tighten further, the negative effects on near-term GDP growth become that much greater.”

The Morgan Stanley team predicts GDP will fall 2.4% in the current quarter, but will begin to recover in the third quarter. Overall, they project the US economy to contract 2.3% on a fourth quarter to fourth quarter basis in 2020, taking full-year global growth down to just 0.3%.

Elsewhere, JPMorgan Chase & Co said last week it expects GDP to shrink 14% in the April-June period and Goldman Sachs Group Inc. sees a 24% plunge. Bloomberg Economics predicts a 9% tumble.

In a Bloomberg interview on Sunday, Federal Reserve Bank of St Louis President James Bullard predicted the unemployment rate may hit 30% in the second quarter because of shutdowns to combat the coronavirus, with an unprecedented 50% drop in GDP.

Those forecasts come as economists warn that the world is already in recession, its first since 2009’s 0.8% contraction.

For China, most see the worst hit in the first quarter. JPMorgan Chase have flagged a 40% plunge in Chinese gross domestic product in the first quarter from the previous three months, the biggest contractions in at least 50 years.

Chinese officials, including Premier Li Keqiang, have pointed to claims the outbreak has been controlled and signs of a resumption of activity as reasons for optimism with regards to China’s outlook.

“Economic indicators will likely show significant improvement in the second quarter and the Chinese economy will return to its potential output level rather swiftly,” People’s Bank of China Deputy Governor Chen Yulu told reporters in Beijing on Sunday.

Source: Bloomberg