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JPMorgan predicts that as the coronavirus outbreak continues to worsen, the economy would get a lot worse before it at least gets a chance to recover.
For a few weeks now, the effects of the ongoing coronavirus pandemic have been biting on financial markets. These effects, unsurprisingly, have hit the economy so hard that the U.S Federal Reserve recently printed a few trillion dollars to support the economy. Even though the government is doing its very best to prevent a total plunge, multinational financial services company JPMorgan has a grim forecast for the economy.
JPMorgan Predicts Plunge in Economy
A while ago, JPMorgan economists announced that the economy would suffer a bit. At the time, they forecasted that the country’s gross domestic product (GDP) in the second quarter, will crash by 25%. The team has now changed this figure, announcing a 40% dip in GDP. In addition to this, they also predict that this dip will affect unemployment and drop rates to 20%. JPMorgan says job loss will hit 25 million. The economists also wrote that in less than a month, there have been 16.8 individual applications for unemployment benefits.
On reaching these conclusions, JPMorgan says it’s been difficult to figure out specifics on how exactly the pandemic has affected the economy. Many other firms trying to make predictions have also faced the same problem, and have been repeatedly changing figures in their forecasts. The economists said:
“Over the last few weeks, forecasters have been operating in a fog. Economic models that have been trained on post-war data face obvious limitations. In their place, we have reverted to differing ways to address the outlook.”
JPMorgan further explained that to arrive at their figures, they considered both the demand and supply sides of the economy. This specifically means a serious reduction in expenditure from the demand side and a plunge in production from the supply side. Both sides are seriously impacted by restrictions in movement.
According to a Financial Times report, JPMorgan has suspended giving out small business loans. The report says so far, it has received over 375,000 requests, much more than other banks. According to a spokeswoman for the institution, all resources are now focused on processing these applications, instead of receiving new ones.
Any Respite in the Economy?
Currently, a few forecasts suggest that the terrible effects of the pandemic will start to ease up by the third quarter. JPMorgan has said that there’s a chance that this recovery could really start happening by June. It is likely that before complete normalcy returns to the markets and the economy, it could be well after June.
Also, some respite might be coming to financial banks. At the moment, the oil industry owes a cumulative $200 billion to several lenders. Some of these companies have already announced they will not be able to pay the loans, bringing in banks to manage their assets until further notice. This, along with the trillions injected into the company, has caused some bank stocks to jump. JPMorgan (NASDAQ: JPM) climbed 8.79% and closed yesterday at $102.76. It has moved up another 1.01% in after-hours trading, to $103.80.