All the steps taken towards mitigating the coronavirus threats on the US economy are similar to the mitigation process adopted during the 2008 financial crisis. Morgan Stanley is of a strong opinion that though the US government is engaging a “strong monetary and fiscal policy response” in fighting against the economic impacts of the coronavirus that will help to sustain global growth in the third quarter of the year, global economic growth will still drop 0.9% this year. This would make it “the lowest since the global financial crisis.” This opinion was made known by Chetan Ahya, Morgan Stanley's chief economist. He further added that “the underlying damage from both Covid-19’s impact and tighter financial conditions will deliver a material shock to the global economy.”
The signs of a potential global recession are already obvious, and even if the US government is able to stabilize its economy within its borders, it would still somehow get affected by other major financial markets that may be struggling at the time. On Tuesday, Morgan Stanley alerted investors on the possible economic threats linked to the coronavirus pandemic and its strong ability to disrupt the world economy.
In a note, Ahya wrote that “Global recession in 2020 is now our base case… with the Covid-19 spreading in Europe and the US after hitting Asia, the disruptions and dislocations in the economy and markets will trigger a year-over-year contraction in global growth…”
There is a great concern that “this time will be worse than the global recession of 2001. While the policy response will provide downside protection, the underlying damage from both Covid-19’s impact and tighter financial conditions will deliver a material shock to the global economy,” he said.
According to Morgan Stanley’s new base case, there is an implication of a $360 billion loss to nominal US gross domestic product (GDP). There is also an expectation that the US quarterly GDP will slow from this quarter until the second quarter of 2021. The firm estimates a 1.8% growth in the US economy by the end of the 2020 first quarter, 0.3%, 0.3% 0.2% in the second, third, and fourth quarters, respectively.
Goldman Sachs Group Inc. supports this belief and has also declared a global recession due to the impacts of the coronavirus on the global economy. Prior to this, economists have forecasted that the world could actually avoid going into a global recession until Trump’s announcement admitting the US slump being a “bad one.” Goldman Sachs experts are now predicting a slow growth of 1.25%.