(Bloomberg) – Analysts at JPMorgan Chase & Co. (NYSE 🙂 forecast an economic contraction in the United States next quarter as various states impose restrictions on businesses and activity amid a record spike in cases of Covid-19.
The world‘s largest economy is expected to contract at an annualized rate of 1% between January and March, JPMorgan said in its US outlook for 2021 released on Friday. This would follow an estimated 2.8% growth in the fourth quarter and the 33.1% expansion reported in the third quarter, following a record contraction in the previous period.
“As the economy functioned through the July wave, around this time the reopening of the economy provided a powerful tailwind to growth,” JPMorgan economists Michael Feroli, Jesse Edgerton and Daniel wrote in the note. “The economy no longer has this tailwind; instead, it is now facing the headwind of increasing restrictions on activity. “
The US recovery – after the recession that began in February – has been stronger than expected overall, in large part thanks to a government stimulus package and the Federal Reserve’s monetary policy measures. But hospitalizations and deaths from Covid-19 are on the rise, and more than a million new cases were recorded last week.
White House economic adviser Larry Kudlow said on Friday he expects the V-shaped recovery to continue beyond January, telling reporters in remarks that “the economy has a tremendous momentum ”.
Meanwhile, lawmakers remain at a deadlock over the size of yet another budget relief package, though Treasury Secretary Steven Mnuchin is trying to revive stalled stimulus talks. Without an extension, millions of Americans are on the verge of losing their unemployment benefits at the end of the year.
JPMorgan is not alone in its forecast. Bloomberg Economics expects GDP to contract at an annualized rate of 0.5% in the first quarter.
At the same time, positive news on Covid-19 vaccines is good news for the U.S. economy, boosting JPMorgan’s confidence in strong economic growth in the second and third quarters of next year. . Analysts also expect an additional $ 1 trillion in budget support by the end of the first quarter, further supporting the case for robust growth in the next two quarters.
So far, Dallas Fed Chairman Robert Kaplan has suggested the economy is at risk of slipping back into recession.
“We’ll have to see what the fourth quarter looks like,” he said. “It is possible that we could have negative growth if this resurgence deteriorates sufficiently and mobility decreases sufficiently.”
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