JPMorgan Warns of ‘Novel’ Recession as Economic Activity Shuts Off

Attempts to contain the coronavirus pandemic will cause the economy to contract — but JPMorgan Chase & Co. analysts expect to see a recovery in the second half of the year.

Alex Kraus/Bloomberg

Alex Kraus/Bloomberg

Researchers at JPMorgan Chase & Co. are expecting the global economy to “meaningfully” contract over the first half of 2020 as countries respond to the coronavirus pandemic.

The bank has slashed its expectations for GDP growth as local and national governments take drastic measures to contain the spread of the virus, including Italy’s nationwide lockdown and new restrictions on travel across countries. In the U.S., states with high levels of reported cases such as California and New York have banned large gatherings in an attempt to limit the virus’s spread, and health agencies such as the Centers for Disease Control and Prevention are encouraging a practice known as “social distancing,” where individuals limit close contact with other people. Sporting events, festivals, and other public events have been cancelled, and overall consumer spending is expected to decline.

“Clearly, you’re going to have a downturn in economic activity,” Joyce Chang, chair of global research at JPMorgan, said by phone.

According to Chang, the bank’s latest forecast for the U.S. includes a 2 percent contraction in the first quarter, followed by a 3 percent tightening in the second quarter. In Europe, JPMorgan is projecting a 1.7 percent decline in the first quarter and 3.3 percent contraction during the following three months.

These two consecutive quarters of negative economic growth will add up to what JPMorgan’s head of economic research Bruce Kasman is calling a “novel global recession” — “novel” because the contractionary period is expected to be more short-lived than a true recession, as defined by the National Bureau of Economic Research.

“It’s not comparable to the global financial crisis, because that was about systemic risk,” Chang said. “This is a large and unexpected supply and demand shock.”

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JPMorgan researchers expect economic growth to rebound in the second half of the year, after coronavirus infection rates peak and normal economic activity starts to resume. Chang said they are looking at China as an indicator of how long it will take other countries to recover. The country, which is projected to suffer a nearly 4 percent contraction in GDP during the first quarter, is expected to grow its economy by a double-digit percentage in the second quarter.

In the meantime, Chang said equity trading will likely remain volatile as uncertainty remains about when the coronavirus outbreak will peak and whether the right measures are being taken to prevent the spread of the disease.

“Valuations were quite high, and the market was pretty heavily invested,” she added. “Volatility will persist for a while.”